ECB’s new inflation target and climate change policies


The European Central Bank announced the results of its strategy review and climate change-related policies on Thursday.


  • New strategy adopts symmetric 2% inflation target over medium term
  • Governing Council confirms that Harmonised Index of Consumer Prices (HICP) remains appropriate price measure and recommends inclusion of owner-occupied housing over time


“The Governing Council considers that price stability is best maintained by aiming for a 2% inflation target over the medium term. This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable.”


“The Governing Council also confirmed that the set of ECB interest rates remains the primary monetary policy instrument. Other instruments, such as forward guidance, asset purchases and longer-term refinancing operations, that over the past decade have helped mitigate the limitations generated by the lower bound on nominal interest rates will remain an integral part of the ECB’s toolkit, to be used as appropriate.”


“The Governing Council (…) recognises that the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation relevant for households and that the inclusion of owner-occupied housing in the HICP is a multi-year project.

“So in the meantime, the Governing Council in its monetary policy assessments will take into account inflation measures that include initial estimates of the cost of owner-occupied housing to supplement its set of broader inflation measures.”


  • The ECB said its Governing Council is strongly committed to expanding its analytical capacity in macroeconomic modelling, statistics and monetary policy with regard to climate change.
  • It said it will aim to include climate change considerations in monetary policy operations in the areas of disclosure, risk assessment, collateral framework and corporate sector asset purchases.
  • It will implement its action plan in line with progress on broader EU policies and initiatives in the field of environmental sustainability disclosure and reporting.
  • It also said it will start conducting climate stress tests in 2022 of the balance sheet of the Eurosystem, which comprises the ECB itself and the national central banks of the 19-member euro area.


“The ECB will accelerate the development of new models and will conduct theoretical and empirical analyses to monitor the implications of climate change and related policies for the economy, the financial system and the transmission of monetary policy through financial markets and the banking system to households and firms.”


“The ECB will develop new experimental indicators, covering relevant green financial instruments and the carbon footprint of financial institutions, as well as their exposures to climate-related physical risks. This will be followed by step-by-step enhancements of such indicators, starting in 2022, also in line with progress on the EU policies and initiatives in the field of environmental sustainability disclosure and reporting.”


“The ECB will introduce disclosure requirements for private sector assets as a new eligibility criterion or as a basis for a differentiated treatment for collateral and asset purchases. Such requirements will take into account EU policies and initiatives in the field of environmental sustainability disclosure and reporting and will promote more consistent disclosure practices in the market, while maintaining proportionality through adjusted requirements for small and medium-sized enterprises. The ECB will announce a detailed plan in 2022.”