Brussels: The European Central Bank (ECB) is poised to reaffirm its ultra-loose monetary policy strategies from the past decade in its ongoing strategy review, according to several ECB policymakers familiar with the matter. This signals a resistance to calls for deeper self-examination following years of quantitative easing, negative interest rates, and a sharp inflation spike that led to significant financial losses.
Launched in March, the ECB’s strategy review is intended to scrutinize its key tools, including large-scale bond buying, negative interest rates, and forward guidance on interest rates. However, insights from multiple policymakers suggest that the outcome will be more of a cautious endorsement of past measures than a critical reassessment.
The review will likely maintain the ECB’s commitment to using “especially forceful or persistent” actions during periods of low inflation and interest rates—language widely interpreted as support for continued use of quantitative easing (QE) and other expansive tools. The sources, who requested anonymity due to the confidential nature of the review process, indicated that only minor updates will be made to the strategy framework last revised in 2021.
An ECB spokesperson declined to comment on the ongoing review.
Some dissenting voices within the ECB have called for greater restraint. Belgian central bank governor Pierre Wunsch has publicly stated that the ECB should consider dropping the clause that opens the door to aggressive intervention. Similarly, Dutch central bank chief Klaas Knot and German executive board member Isabel Schnabel have advocated for more selective use of bond purchases, emphasizing the effectiveness of short-term QE over prolonged programs that can become financially burdensome.
During a policy retreat in Porto on May 6–7, ECB governors were presented with a draft of the revised strategy. The ECB staff analysis defended the effectiveness of past stimulus actions and recommended that such tools remain integral to the central bank’s policy arsenal. Governors offered feedback at the meeting, and the revised document is expected to be finalized by early summer.
Despite a generally collegial tone, some policymakers expressed disappointment over the draft’s lack of critical reflection on how the ECB responded to the inflation surge of 2021–2022. Forward guidance, in particular, came under scrutiny, with officials now advocating for a more restrained use after it delayed the bank’s response to rising prices.
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The final strategy is anticipated to reaffirm the ECB’s symmetric inflation target of 2%, underlining that both inflation overshoots and undershoots are equally problematic. It will also acknowledge the challenging landscape of monetary policy amid ongoing global uncertainty.
Over the past decade, in efforts to counter deflation and economic stagnation, the ECB created vast reserves through bond purchases. While these actions helped stabilize markets, they also exposed the ECB and the euro zone’s 20 national central banks to losses when inflation rebounded and interest rates climbed.
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Currently, the ECB is paying a 2.25% rate on around €2.8 trillion ($3.11 trillion) of bank reserves—a cost that, while manageable, deprives euro zone governments of central bank dividends and could erode public trust in the institution over time.
While profitability is not a central bank’s core objective, sustained financial losses can have significant political and reputational implications. Nonetheless, the ECB appears set to defend its past decisions as largely effective in maintaining euro zone stability through years of crisis.
