The European Central Bank (ECB) will hold a non-monetary policy meeting today. The ECB’s attention will turn to properly managing
The European Central Bank (ECB) will hold a non-monetary policy meeting today.
The ECB’s attention will turn to properly managing inflation as member states begin to reopen their economies more widely and economic activity picks up. There are also growing calls for the central bank to replicate actions taken by the US Federal Reserve and carefully allow inflation to exceed the two percent target. Doing so would broaden the bank’s focus beyond price stability and allow it to address unemployment, which remains above pre-pandemic levels.
Today’s meeting will likely also include long-term goals surrounding green financing, funding in environmentally sustainable businesses and decarbonizing projects, and risk associated with climate change. For the first time, the ECB is conducting stress tests on eurozone companies and banks focusing on their resilience to climate related risks over the next 30 years. These institutions chronically underprice the effects of climate change on their operations. Disappointing results from the test may prompt the ECB to adjust rules on capital requirements and the disclosure of climate risk data. Expect climate related policy to remain the ECB’s focus in the medium-term as it sets the stage for a green recovery in capital and bond markets.
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