Headlines
ECB tweaks strategy to counter sustained inflation swings - either up or down
Published by Global Banking & Finance Review®
Posted on June 30, 2025
3 min readLast updated: January 23, 2026
Global Banking & Finance Review®
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Published by Global Banking & Finance Review®
Posted on June 30, 2025
3 min readLast updated: January 23, 2026
The ECB updates its strategy to manage inflation swings, emphasizing a balanced approach to maintain its 2% target amid economic shifts.
By Francesco Canepa
SINTRA, Portugal (Reuters) -The European Central Bank pledged on Monday to react with equal vigour when inflation was too high as when it was too low, tweaking its overarching strategy after being blind-sided by a surge in prices in recent years.
The ECB's new five-year strategy follows a rollercoaster period in which it went from worrying about deflation during the pandemic to a cost-of-living crisis exacerbated by Russia's invasion of Ukraine and, most recently, disruptions from a simmering trade war.
In its new strategy statement, the euro zone's central bank kept a pledge - fought over internally - to deploy "especially forceful or persistent monetary policy measures" but said it would do so when inflation strayed far from its 2% target in either direction.
The ECB’s previous strategy statement, published in 2021 when inflation had just started rising, was mostly focused on the risk of price growth getting stuck at low levels, something now seen as a mistake by some central bankers.
"To maintain the symmetry of the target, appropriately forceful or persistent monetary policy action in response to large, sustained deviations of inflation from the target in either direction is important," the ECB said.
In the new document, the ECB also emphasised that the global economy was facing a number of "structural shifts" from geopolitical and economic fragmentation to demographics and climate change, that will make inflation more prone to large deviations from its target level.
"The inflation environment will remain uncertain and potentially more volatile, with larger deviations from the symmetric 2% inflation target," it said.
'FORCEFUL' TUSSLE
Some of the 25 policymakers on the ECB’s Governing Council had wanted to change the reference to "especially forceful" action - previously seen as a byword for massive bond purchases and ultra-low interest rates - and engage in greater soul-searching about the central bank’s ultra-easy policy of the last decade.
But the new strategy statement was largely free of criticism of its previous policy stance, as sources had indicated it would be in comments to Reuters earlier this year.
"All monetary policy tools currently available to the Governing Council will remain in its toolkit," the ECB said. "Their use at any time will continue to be subject to a comprehensive proportionality assessment."
A growing number of policymakers from the ECB's hawkish camp – those who favour a tighter monetary policy stance - have signalled in recent weeks that the bar for more bond buying, or quantitative easing (QE) in economic parlance, would be higher in the future.
In an interview with Reuters, the ECB’s vice-president Luis de Guindos said the euro zone’s central bank had now learned more about QE’s side effects.
The programme has been blamed for a bubble in financial and property markets for causing massive losses at the ECB and its shareholding central banks once interest rates rose.
(Reporting by Francesco Canepa; Editing by Alison Williams and Hugh Lawson)
The ECB's new strategy emphasizes responding with equal vigor to both high and low inflation, ensuring that monetary policy measures are applied forcefully when inflation deviates significantly from the target.
The ECB noted that the global economy is facing structural shifts, including geopolitical fragmentation, demographic changes, and climate change, which contribute to an uncertain inflation environment.
The ECB aims to maintain a symmetric 2% inflation target by implementing appropriate monetary policy actions in response to large deviations in inflation, whether upwards or downwards.
The ECB stated that all current monetary policy tools will remain in its toolkit, with their use subject to a comprehensive proportionality assessment.
The ECB's vice-president, Luis de Guindos, mentioned that the central bank has learned more about the side effects of quantitative easing, particularly regarding its impact on financial and property markets.
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