ECB to Evaluate The Effectiveness Of Inflation Goal --- A Revision to Strict Policy Could Lower Interest Rates, Spur Growth in Euro Zone
FRANKFURT -- After years of criticism for being overly strict, the European Central Bank is planning to reassess its inflation target.</br></br>A possible change could result in lower interest rates and stronger economic growth for the world's second-largest economy, providing firmer support for the U.S. and the world.</br></br>The ECB aims to keep annual rates of inflation below 2%, the most austere goal of any major central bank. Over the past two years, the ambitious objective kept the bank from trimming interest rates as swiftly as the U.S. and the U.K., even as the economy slowed sharply. Despite the effort, inflation overshot the target for three of the four years since the birth of the ECB and the currency it manages, the euro.</br></br>The ECB recently announced it would review during the first half of next year the strategy it uses for setting interest rates. But Lucas Papademos, the ECB's vice president, confirmed in an interview during the weekend that the analysis will also encompass the bank's most sacred tenet: its own definition of price stability.</br></br>Mr. Papademos cautioned that "the assessment that is going to take place need not imply a change." Nor should the study imply the ECB has any doubts about the strategy and goals it has pursued so far, he said.