Lagarde: ECB’s 2% Inflation Target ‘Simple, Solid, Symmetric’

The ECB has revised its inflation target to a clear and symmetric 2%, emphasizing a medium-term orientation. This change allows for better monetary policy maneuverability and aims to reduce welfare costs associated with high inflation. The ECB recognizes the constraints of the effective lower bound and is prepared to respond forcefully, accepting that inflation may temporarily exceed the target. The term 'transitory' is defined as a flexible period, determined by the Governing Council's discretion. The ECB remains committed to its objectives, focusing on the solidity and symmetry of its inflation target.

What is the main change in the ECB's inflation target?

• It is now a vague aim.

• It is set below 2%.

• It is no longer a target.

• It is set at a clear and symmetric 2%.

What does the ECB mean by a symmetric 2% target?

• Deviations are acceptable in any direction.

• Both deviations above and below 2% are undesirable.

• Only deviations below 2% are undesirable.

• Only deviations above 2% are undesirable.

How does the ECB plan to handle constraints from the effective lower bound?

• By reducing interest rates to zero.

• By setting a higher inflation target.

• By responding forcefully and persistently.

• By ignoring them.

What does 'transitory' inflation mean according to the ECB?

• A permanent increase in inflation.

• A temporary deviation due to forceful actions.

• An indefinite period of high inflation.

• A deliberate increase in inflation.

How does the ECB view its policy approach in terms of hawkish or dovish?

• It is neither hawkish nor dovish, but owl-like.

• It is strictly hawkish.

• It is focused on a solid, symmetrical framework.

• It is strictly dovish.