The European Central Bank is set to scrap its focus on using the latest economic data to determine whether to cut interest rates, sounding the knell for one of the core strategies deployed by the Eurozone’s rate-setters to bring under control the worst bout of inflation in a generation.
Philip Lane, the ECB’s chief economist, told the Financial Times’ The Economics Show with Soumaya Keynes that monetary policy decisions at some point in the future needed “to be driven by upcoming risks rather than being backward-looking” once the central bank was sure inflation was in line to hit its medium-term goal of 2 per cent.
Before the post-pandemic surge in inflation, the ECB and other major central banks put a lot of weight on their forecasts for where inflation would be two years from now when deciding interest rates.