By Francesco Canepa and Balazs Koranyi

FRANKFURT (Reuters) – There is reluctance among European Central Bank policymakers to follow the U.S. Federal Reserve’s move to target an average inflation rate, fearing this could tie their hands, sources involved in a revamp of ECB policy told Reuters.

The four central bank sources, including members of both the hawkish and dovish wings of the ECB’s policymaking governing council, also expressed doubts about whether orthodox inflation theory still applied in economies where prices have long stagnated despite interest rates close to or below zero.

After missing its goal of keeping inflation “below but close to 2%” for a decade, the ECB is reviewing its strategy in the wake of a similar review by the Fed and just as a pandemic-induced recession is pushing euro zone inflation into negative territory.

The euro zone’s central bank has been expected to follow the Fed, which said in August it would aim for 2% average inflation over an unspecified period, so that periods when prices grow too slowly need to be compensated by times of faster increases – and vice versa.

But the policymakers who spoke to Reuters feared that going down this route risked encouraging financial markets to jump to the wrong conclusions about future policy decisions based simply on where the average happened to be at a given point in time.

Instead, they wanted to retain the flexibility to judge each situation on its own merits, for instance by playing down the significance of temporary changes in inflation due to swings in the price of oil.

“We want flexibility so an average target would not really give us a benefit,” one of the sources said.

An ECB spokesman declined to comment.

With euro zone inflation averaging 1.3% over the past decade and currently negative, they

(Bloomberg) —

a group of people on a sidewalk: Pedestrians walk past stacked chairs outside a closed cafe in Plaza del Angel in Madrid, Spain, on Thursday, Oct. 8, 2020. France, Spain and the Czech Republic posted record increases in coronavirus cases, underscoring growing alarm in Europe as it struggles to control the pandemic.

© Bloomberg
Pedestrians walk past stacked chairs outside a closed cafe in Plaza del Angel in Madrid, Spain, on Thursday, Oct. 8, 2020. France, Spain and the Czech Republic posted record increases in coronavirus cases, underscoring growing alarm in Europe as it struggles to control the pandemic.

The European Central Bank isn’t happy with the inflation outlook and will decide “meeting by meeting” whether more monetary stimulus will be needed, chief economist Philip Lane said in an interview with the Wall Street Journal.


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Lane pointed to data arriving over the coming weeks that will help policy makers make their decision, dodging a question on whether updated forecasts in December might be a trigger.

“I wouldn’t focus on any one meeting,” Lane said. “It’s not the case that we only look at the formal projection rounds.”

Economists widely expect the ECB to expand its 1.35 trillion-euro ($1.6 trillion) emergency asset-purchase program by the end of the year. Policy makers have publicly disagreed over whether more support is needed, with Executive Board member Fabio Panetta arguing the risk of doing too much is smaller than being “too shy” and Bundesbank President Jens Weidmann warning against presuming the central bank would act.

The euro-area inflation rate has been negative since August, and the ECB currently predicts the measure to climb to 1.3% in 2022, far below its just-under-2% goal.

“The current inflation level remains far away from our goal,” Lane told the WSJ. “We don’t think that is a satisfactory inflation outlook.”

Governing Council members from Italy and Slovakia reiterated his view.

Ignazio Visco said in a separate interview with Il Corriere della Sera that monetary policy “must be expansive and remain so for a long time.”

“Through our monetary policy we are able to intervene effectively to defeat

BRUSSELS/FRANKFURT (Reuters) – Euro zone inflation fell deeper into negative territory last month, raising pressure on the European Central Bank to add stimulus, as an ongoing recession will keep price growth below its target for years to come.

Annual inflation in the 19 countries sharing the euro fell to minus 0.3% in September, its lowest in more than four years, from minus 0.2% a month earlier. That fell short of expectations for an unchanged reading, data from Eurostat showed on Friday.

More worryingly for ECB policymakers, underlying inflation, which excludes volatile food and energy costs, fell to 0.4% from 0.6%, far from the ECB’s target of almost 2%. Services inflation slowed further and the cost of imported industrial goods fell.

Although the ECB has unleashed unprecedented stimulus this year to combat a pandemic-induced economic shock, rising unemployment, surging savings, widespread restrictions on travel and plummeting business investment have proved an exceptional drag on prices.

A second wave of the coronavirus is likely to add to the gloom, which torpedoes confidence and weighs on prices further, economists say.

While the ECB held fire last month, it kept the door wide open to more stimulus. Board member Fabio Panetta made a clear case for preemptive action, arguing that the cost of doing too much is smaller than the cost of inaction.

His argument is further supported by a tumble in an even narrower core inflation reading, which also excludes alcohol and tobacco prices, to 0.2% from 0.4%.

Still, no ECB move is likely in October. Policymakers have long said that more data, particularly on 2021 fiscal policies, will be needed before they can take a fresh decision.

They have also prepared markets for bad inflation readings, arguing that price growth could stay negative for the rest of the year before a steady

(Bloomberg) — The European Central Bank will start experimenting with a digital version of the euro while holding a public consultation in a major step toward introducing the technology.

a close up of a logo: A hologram with the · symbol shines on a 200 euro banknote.

© Photographer: picture alliance/picture alliance
A hologram with the · symbol shines on a 200 euro banknote.

“Our role is to secure trust in money,” President Christine Lagarde said as the ECB published a study into the benefits and drawbacks of a digital currency. “This means making sure the euro is fit for the digital age. We should be prepared to issue a digital euro, should the need arise.”


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The consultation will start Oct. 12, and the experiment will be held in parallel. The ECB said it will decide toward mid-2021 whether to launch a digital euro project, which would start with an “investigation phase.”

Cryptocurrencies such as Bitcoin, while regularly criticized by central bankers as little more than speculative assets, have nevertheless spurred a close look at how payment technologies are developing.

A central-bank digital currency would allow euro-area residents to place deposits with the ECB directly. That’s typically only an option for commercial lenders, governments and other central banks.

That has implications for monetary policy and financial stability. The ECB report urged a look at “whether a digital euro should be accessible by households and firms directly or indirectly through intermediaries, whether it would be remunerated, and whether digital euro holdings of individual users should be limited.”

Central bank digital currencies explained
They’re electronic versions of legal tender, available either directly to consumers or via banksThey are based on a technology called blockchain that aims to keep transactions secureThey can improve access to legal tender in countries where cash use is dwindling, while also facilitating faster and cheaper cross-border paymentsA key challenge is to ensure the commercial