ECB reviewing QE but 2% target ‘not up for debate’ – de Guindos

The European Central Bank’s (ECB) upcoming strategy review will retain the bank’s interpretation of price stability as “2% inflation over the medium term”, Luis de Guindos told Italian news agency ANSA on October 29.

Instead, the bank is reviewing how its previous strategy fits into a new political-economic context, the ECB vice-president said, including “new elements, such as the changed economic and inflation environment, the possibility of deglobalisation and other structural elements that could affect the inflation outlook”.

The bank will also look at the “consequences of past measures”, such as the unwanted side-effects of quantitative easing. De Guindos said QE was “an instrument that proved to be very useful to fight deflation and the impact of the pandemic” but also had downsides such as central bank losses.

This is not to say that the ECB would not touch QE again, but that it wants to learn from the past, de Guindos clarified. The bank expects to conclude its strategy review at the end of 2025.

De Guindos added that the bank’s cautious approach to monetary policy is warranted by heightened geopolitical risk. “When you are in a dark room full of uncertainty, for example because of geopolitical risks that you cannot control, you have to take very careful steps”, he said.

The council member said that Europe has to get on with finishing the banking union, as without it, “it will be very difficult to have a real economic and monetary union”. Touching on the merger between Italy’s UniCredit and Germany’s Commerzbank, the governing council member said the ECB wants to see the “European approach prevail over a national one”.

Italy is the only EU member state that hasn’t ratified the treaty to reform the European Stability Mechanism (ESM). To improve European economic integration and accelerate the integration of the banking system and the capital markets, the government should ratify the reformed ESM treaty, de Guindos said.