ECB should look at formulation of its inflation target – Villeroy

© Reuters. Francois Villeroy de Galhau, attends the Group of 20 (G-20) high-level seminar on financial innovation “Our Future in the Digital Age” on the sidelines of the G-20 finance ministers and central bank governors meeting in Fukuoka


PARIS (Reuters) – The European Central Bank should look at how its inflation target is formulated as part of a review of its policy framework, ECB policymaker Francois Villeroy de Galhau said on Friday.

The ECB currently strives to steer inflation over the medium term to a rate “below, but close to, 2%”, but has undershot it for years despite massive injections of monetary stimulus into the economy to boost prices.

Villeroy, who is also head of the French central bank, said that the target was “symmetric” in the sense that it is not a ceiling – as it is sometimes seen – and the ECB could tolerate overshooting for sometime without tightening policy.

“The Governing Council has frequently re-affirmed its commitment to symmetry,” Villeroy said in an online speech to the Official Monetary and Financial Institutions Forum.

“Nevertheless, we should examine whether the current formulation casts doubt on this,” he added.

Not only does the ECB need to discuss the precise formulation of its target, he said, but it also needs to take a second look at its inflation gauge, and possibly include “owner occupied housing”, as the U.S. Federal Reserve does.

The Fed gave less weight to worries about high inflation in a major a revision last month of its monetary policy approach, putting pressure on the ECB to take a hard look at its framework for decisions in its policy review.

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With inflation still mired below the ECB’s target, Villeroy dismissed “chatter” that it was running out of ammunition and said there should be no doubt about its determination and capacity to act further.

“If needed, the ECB has ample room for manoeuvre,” he said.


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