At its monetary policy meeting on 23 January, the Governing Council of the ECB decided to review its monetary policy strategy. Alongside the national central banks, this newly launched process will also engage with the general public and civil society.

The review will encompass the formulation of price stability, monetary policy toolkits, economic and monetary analyses and the ECB’s communication practices. The review will also take into account how other considerations, such as financial stability, employment and environmental sustainability, can be relevant in pursuing the ECB’s mandate. The Governing Council will take stock of how the monetary policy strategy has supported the fulfilment of the ECB’s mandate under the Treaty over the years and consider whether any elements of the strategy need to be adjusted.

The Eurosystem’s monetary policy strategy was adopted in 1998, although some of its elements were clarified in 2003. The review process is expected to be concluded by the end of the year.

Profound structural changes

The euro area and the world economy have been undergoing profound structural changes since 2003, including declining trend growth on the back of slowing productivity and an ageing population as well as the legacy of the financial crisis. This caused a significant drop in inflation, presenting the central bank with different challenges from what it has faced historically – addressing high inflation. The threat to environmental sustainability, rapid digitalisation, globalisation and evolving financial structures have further transformed the environment in which monetary policy operates, including the dynamics of inflation.

In light of these challenges, the Governing Council has decided to launch a review of its monetary policy strategy, in full respect of its price stability mandate as enshrined in the Treaty. “The time has come to learn the monetary policy lessons – not just from the past years of low inflation and low interest rates, but also from the financial crisis”, commented Bundesbank President Jens Weidmann with reference to the strategy review. “I think it is particularly important for us to make our policy understandable and to engage with people”, he added.

Associated events

This process will be accompanied by a series of events held by the national central banks and the ECB. At these events, the central banks will discuss the Eurosystem’s strategy with members of the general public, civil society organisations and academia. 

The ECB will start things off in Brussels. The event is intended to take place in the second half of 2020. The Bundesbank will postpone the event it had originally scheduled for 4 May 2020 with representatives of civil society organisations and trade and consumers’ organisations in Frankfurt am Main to autumn of this year. An exact date will be set when the situation allows for more concrete planning.

The debate surrounding the Eurosystem’s monetary policy strategy is also set to be one of the key topics of the next Euro20+ event at the end of October 2020. The Bundesbank will invite 250 young people between the ages of 18 and 30 to participate in the third edition of the event, which will take place on 30 and 31 October. On this occasion, guests will include the Governor of the Banco de España, Pablo Hernández de Cos. As the plans currently stand, Bundesbank President Jens Weidmann will also hold a Q&A session in Essen at the start of 2021 with guests from the region to discuss current topics in monetary policy as well as the strategy process. More information about the strategy process can be found on the ECB’s website.