11 Inflation, climate, jargon: ECB launches major review

The European Central Bank's new president Christine Lagarde has announced that the Frankfurt-based institute will soon undertake a strategic review, its first since 2003.

Here is how the ECB's strategy has developed over the years and what has prompted the decision to reassess it.

What is the ECB strategy now? 

The ECB's overriding mandate is to ensure price stability.

In 2003, its main decision-making body, the governing council, defined that goal as an inflation rate of "just below, but close to" two percent, a level that would encourage investment and employment, while warding off deflation.

Nevertheless, inflation has remained stubbornly low at around one percent, a phenomenon that has left many economists around the world scratching their heads.

Different theories have been put forward as to a possible explanation, from the rise of the casual "gig" economy or the suppression of workers' earnings through globalisation, to political shocks, such as trade tensions and Brexit.

Inflation, climate in focus

There have been increasing calls for the central bank to rethink the inflation target and the issue is certain to feature highly on the ECB's review, which is expected to take many months.

At the same time, the ECB is under pressure to do more to tackle climate change and wealthier countries like Germany see the review as a chance to call into question the ECB's ultra-expansive policy.

They have long argued that the bank's record-low — and even negative — interest rates, as well as its massive "quantitative easing" bond-buying programme, are detrimental to savers and help accentuate asset price bubbles.

The review will be "an ideal opportunity for Christine Lagarde to reflect on the unconventional crisis measures adopted over the past decade," Pictet Wealth Management strategist Frederik Ducrozet said.