ECB Raises Inflation Forecast to 2%

European Central Bank(ECB) policymakers agreed to raise the inflation target to 2% and make room to exceed it when needed.

The decision marked a significant change from the previous target of below 2% to conclude the ECB's first strategic review, on Tuesday and Wednesday, in nearly 20 years.

The strategy pushes for ultra-loose monetary policy as they strive to reverse years of below-target inflation, which have weighed on the euro area’s economies as the economy recovers from the pandemic.

In the winter, officials are expected to discuss how to exit emergency policies that include a flexible €1.85 trillion bond-buying programme.

ECB President Christine Lagarde said last month that while policy makers have treated responded equally to very low and very high results, the current wording may have made their commitment 'confusing to observers and markets'.

Lagarde has repeatedly said she expects inflation to drop below the target in the medium term, after rising above the target at the end of 2021.

Executive Board member Isabel Schnabel hinted on Saturday that the central bank could allow the limit to be exceeded, allowing the actual underlying inflation dynamics to be in line with expectations.