Highlights:

• Today the ECB revealed – surprisingly early – the results of its strategy review, which was unanimously approved within the Governing Council.
• Most importantly, it moved to a 2% symmetric inflation target, allowing temporary deviations from this target. The definition of the HICP is not changed but owner occupied housing costs will be considered and shall be included in the index at a later stage.
• The ECB will tolerate moderate deviations of inflation from target but does not follow the Fed in its average inflation targeting approach.
• Going forward, an analysis of the financial system will complement the monetary analysis. The ECB recognises that close to the effective lower bound forceful and persistent action is needed, suggesting that ‘unconventional’ measures are now part of the regular toolbox.
• The ECB has announced an ambitious climate strategy, but the lack of near-term action and little operational details is slightly disappointing. Credit market should not react to these announcements.
• The ECB seeks to better communicate the rationale behind its decisions and already announced the next overhaul of its strategy in 2025.
• Overall, this announcement cements a dovish bias but does not endorse extreme changes.

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