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

By Leika Kihara and Takahiko Wada

TOKYO, Oct 12 (Reuters)Japan must swiftly revise laws to allow the central bank to issue a digital currency, a move that could provide a chance to reform the Bank of Japan’s existing mandates and enshrine its inflation target, a senior ruling party official said on Monday.

Kozo Yamamoto, head of the Liberal Democratic Party’s (LDP) council on financial affairs, said the BOJ risked being overtaken by private players who could launch their own digital currencies that could undermine the yen.

“If something too convenient pops up from the private sector, people might start to doubt whether they need yen as a currency unit. We must prevent this from happening,” he said. “This is fundamentally about protecting Japan’s currency sovereignty.

Yamamoto said he would prod the government and relevant agencies to speed up efforts to draft a revised BOJ law and other necessary legislation for issuing central bank digital currencies (CBDC).

However, more broadly, Yamamoto has been a vocal advocate of making changes to the BOJ law, which sets out the central bank’s mandates.

Revising the law to include digital currencies would also present a good opportunity to make other changes such as adding an inflation target and job creation to the mandates, much like the U.S. Federal Reserve, he added.

“The new law should also clarify that 2% inflation is the BOJ’s policy target,” he told Reuters.

The BOJ does currently set 2% as its inflation target, introduced in 2013. But the target is not stipulated under the BOJ law, which says only that its role is to ensure Japan’s price moves and financial system are stable.

Central banks globally have been reviewing their strategic goals, with the European Central Bank widely expected to follow in the footsteps

The U.S. Capitol building on Oct. 8.



Photo:

Stefani Reynolds/Bloomberg News

Tuesday

U.S. consumer prices are expected to rise in September for a fourth consecutive month following a sharp drop at the height of pandemic lockdowns. The Covid-19 recession has scrambled prices for an array of goods and services, but overall inflation pressures are expected to remain muted, allowing the Federal Reserve to keep its easy-money policies in place.

The International Monetary Fund releases forecasts for global economic growth that are expected to show a less-severe contraction in 2020 than initially anticipated. The latest outlook report comes as finance ministers and central bankers gather virtually for the IMF and World Bank’s annual meetings, which are often catalysts for global responses to crises but are unlikely to spark unified action against the Covid-19 recession this year.

Thursday

U.S. jobless claims have remained stubbornly high in recent weeks, a sign layoffs are still elevated even as the overall economy adds jobs. Figures for the week ended Oct. 10 are expected to show a slight decline in new applications for benefits from the previous week—though not nearly enough of a drop to change the picture of continued economic disruption.

European Union leaders meet in Brussels on Thursday and Friday to take stock of Brexit negotiations. The EU and U.K. face a Dec. 31 deadline to finalize terms for the breakup or face new barriers to trade and heightened economic disruption. The sides remain at odds on issues including appropriate levels of state aid, fishing rights and new U.K. legislation that appears to breach terms of a withdrawal agreement.

Friday

U.S. retail sales are expected to advance in September for a fifth consecutive month, underscoring a strong rebound in consumer spending on goods. Another month

MILAN (Reuters) – Board member Ignazio Visco said the European Central Bank should set a clearer inflation target and should attribute the opinions published in its minutes to the relevant policymakers for greater transparency.

Visco, who is governor of the Bank of Italy, told daily newspaper Il Corriere della Sera that the ECB’s current target of inflation below but close to 2% in the medium term was “vague and difficult to understand”.

“I think the target must be symmetrical,” he said in an interview published on Sunday.

“Levels of one percent or 1.5% are too low as we need flexibility margins to face crisis,” he said.

Visco said the ECB was studying a recent shift in U.S. central bank strategy which puts more focus on bolstering the labour market and less on lowering inflation.

“We are discussing ourselves on how to review our monetary policy strategy,” he said.

Visco also said the ECB should provide more clarity on its intentions and that opinions reported in its policy meeting minutes, now anonymous, might be explicitly attributed to those policymakers who expressed them.

“People need to know what each of us thinks and how we express it in the Council meetings,” he said, adding in was not positive that monetary policy decisions were followed by press releases by some national central banks or statement by policymakers.

September policy meeting minutes showed that the ECB might be more concerned about the epidemic-hit economy than analysts had previously thought, suggesting it could roll out more stimulus later this year.

“Monetary policy must remain expansive and be so for a long time,” he said.

(Reporting by Giulio Piovaccari; Editing by Raissa Kasolowsky)

Copyright 2020 Thomson Reuters.

Source Article

MILAN (Reuters) – Board member Ignazio Visco said the European Central Bank should set a clearer inflation target and should attribute the opinions published in its minutes to the relevant policymakers for greater transparency.



Ignazio Visco wearing a suit and tie: FILE PHOTO: Ignazio Visco, governor of Bank of Italy, speaks during an event to launch the private finance agenda for the 2020 United Nations Climate Change Conference (COP26) at Guildhall in London


© Reuters/POOL
FILE PHOTO: Ignazio Visco, governor of Bank of Italy, speaks during an event to launch the private finance agenda for the 2020 United Nations Climate Change Conference (COP26) at Guildhall in London

Visco, who is governor of the Bank of Italy, told daily newspaper Il Corriere della Sera that the ECB’s current target of inflation below but close to 2% in the medium term was “vague and difficult to understand”.

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“I think the target must be symmetrical,” he said in an interview published on Sunday.

“Levels of one percent or 1.5% are too low as we need flexibility margins to face crisis,” he said.

Visco said the ECB was studying a recent shift in U.S. central bank strategy which puts more focus on bolstering the labour market and less on lowering inflation.

“We are discussing ourselves on how to review our monetary policy strategy,” he said.

Visco also said the ECB should provide more clarity on its intentions and that opinions reported in its policy meeting minutes, now anonymous, might be explicitly attributed to those policymakers who expressed them.

“People need to know what each of us thinks and how we express it in the Council meetings,” he said, adding in was not positive that monetary policy decisions were followed by press releases by some national central banks or statement by policymakers.

September policy meeting minutes showed that the ECB might be more concerned about the epidemic-hit economy than analysts had previously thought, suggesting it could roll out more stimulus later this year.

“Monetary policy must remain expansive and be so for