In the recent ECB Survey of Professional Forecasters, the longer-term expectations for key inflation had been revised up to 1.8% for 2026 from 1.7% for 2025 in the previous round.
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At the same time, the market-based measures of inflation compensation and option-implied risk-neutral inflation probabilities had remained widely unchanged since the June monetary policy meeting.
The long-term GDP-weighted sovereign yields had dropped in parallel with risk-free rates since June’s meeting, but they were still far above the levels recorded last December.
The annual growth of M3 had reduced further in May, implying a normalization of monetary flows compared with the peak of the crisis.
The Governing Council was seeking to update its forward guidance on the key ECB interest rates towards a commitment to retain monetary accommodation on a consistent level relative to the 2% target.
The new monetary strategy in the ECB’s forward guidance on interests will involve redefinition of the ECB’s price stability objective as a 2% inflation target over the medium term and a conditional commitment to account for the implications of the effective lower bound in low nominal interest rates.