ECB confirms inflation target but Lagarde warns: 'Highly uncertain environment'

"The environment remains highly uncertain and potentially more volatile and this will make it more challenging to conduct monetary policy and achieve our price stability mandate". So said ECB President Christine Lagarde at a press conference on the first day of the ECB Forum in Sintra. According to the president, the current environment "offers many reasons for concern but one thing they should not worry about is our commitment to price stability". Lagarde reiterated the central bank's commitment to fulfil its mandate and to keep the tools up to date to respond to new challenges.

In this regard, she presented the results of the 2021 strategy review, which confirms the symmetric inflation target of 2% in the medium term. Furthermore, the review emphasises that "all monetary policy instruments currently used by the Governing Council will remain available. Their use at any time will continue to be subject to a thorough proportionality analysis". Indeed, in its forthcoming monetary policy decisions, the Governing Council will take into account not only "the most likely trajectory of inflation and the economy", but also the "risks" and "uncertainty" that characterise the current environment. The central bank then points out that "the first regular monetary policy meeting of the Governing Council that will implement the updated strategy will be held on 23-24 July 2025. The Governing Council intends to assess the appropriateness of its monetary policy strategy on a regular basis'. The next assessment, on the other hand, "is scheduled for 2030".

"We have concluded that our monetary policy strategy remains appropriate to meet future challenges," the ECB president commented further. "With our updated policy statement," Lagarde added, "we adopt a comprehensive view of the challenges facing monetary policy, so that the ECB can continue to be a benchmark for stability in a more uncertain world. Lagarde added that 'in 2021 we did a very thorough strategy review that has proven its worth in many different circumstances, from very low inflation to very high inflation, and has now allowed us to bring prices back on target'. She emphasised that the strategy review, which was unanimously approved by all Governing Council members, defines downward as well as upward inflation overshooting as undesirable, as defined by the symmetric inflation targeting.

The ECB's chief economist Philip Lane also returned to the inflation target, reiterating that the central bank will react "vigorously" to deviations from the target both upwards and downwards. After the review of the 2021 strategy, Lane explained, the ECB had emphasised the need to react 'vigorously or persistently' to inflation rates that are too low, but 'this applies equally to inflation rates above the target'.