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ECB Policymakers Set for Showdown on Policy Path

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FRANKFURT Reuters European Central Bank policymakers are set for a showdown next week as they chart a new policy path amid growing fears of a third wave of coronavirus infections.

The guidance update is made necessary by the ECBs new strategy, which says the central bank should let inflation across the 19 countries that use the euro currency edge above 2 when interest rates are near rockbottom as they are now.

That change in strategy, announced last week, was unanimously adopted, but putting it into practice is proving trickier.

This is because ratesetters on the ECBs Governing Council disagree on the economic outlook and thus on how much more stimulus, mainly in the form of bond purchases, is needed.

The ECBs current guidance is that it will buy bonds for as long as it deems necessary and keep interest rates at their current, record low until it is happy that inflation is converging to its target.

Governors from indebted countries such as Portugals Mario Centeno and Italys Ignazio Visco have come out in force to argue that the new strategy means the ECB should keep the money taps wide open for even longer.

The strategy admits a temporary and moderate inflation values above 2, Centeno told Reuters this week. We must be patient and tolerant with deviations that we would not tolerate previously.

Visco too said that any premature tightening should be avoided. He cited the risk of a third wave of COVID19, which has already seen curbs reinstated in some euro zone…

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