In a keynote speech, European Central Bank (ECB) Executive Board member Philip R. Lane set out how the ECB’s recently updated monetary policy strategy translates into operational decision-making, and reviewed the September 2025 staff projections that show inflation easing below target in 2026-27. He framed near-term policy as data-dependent and decided meeting by meeting, with no pre-commitment to a future interest rate path, and noted the remarks were his personal views. Lane restated the Governing Council’s aim of 2% inflation over the medium term with a symmetric commitment, and emphasised the medium-term orientation’s flexibility to look through temporary shocks while acting forcefully or persistently against large, sustained deviations to prevent inflation expectations from becoming de-anchored. He highlighted a new element in the strategy statement that explicitly embeds uncertainty and risk management, including scenario and sensitivity analysis, against structural shifts including geopolitics, digitalisation, artificial intelligence, demography, threats to environmental sustainability and changes in the international financial system. Under the September baseline, headline inflation averages 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027, with non-energy inflation projected to slow from 2.5% in 2025 to 2.0% in 2026 and 1.9% in 2027 as compensation per employee growth decelerates from 3.4% in 2025 to 2.7% in 2026-27. Energy inflation is projected at -1.6% in 2025 and -1.1% in 2026 before rising to 2.4% in 2027, partly linked to the planned introduction of EU Emissions Trading System 2 in 2027; Lane also tied the outlook to the 200 basis points of rate reductions since June 2024, conditional on a target-consistent stance. On the risk assessment, he pointed to downside risks from euro appreciation, higher tariffs and trade-related financial volatility weighing on demand, and upside risks from global supply-chain fragmentation, higher defence and infrastructure spending, and climate-related food-price shocks. Lane also noted that the current risk distribution does not suggest a policy rate increase is a significant near-term possibility, and said he will return to monetary policy transmission in a separate speech in the coming weeks.
European Central Bank 2025-10-06
European Central Bank’s Lane reiterates the 2% symmetric target and a meeting-by-meeting rate approach as September projections show 1.7% inflation in 2026
In a keynote speech, ECB Executive Board member Philip R. Lane outlined the ECB's updated monetary policy strategy, emphasizing a data-dependent approach without pre-commitment to future interest rate paths. He highlighted the Governing Council's 2% inflation target and the strategy's focus on uncertainty and risk management, considering factors like geopolitics and digitalization. Lane noted inflation projections below target for 2026-27 and identified risks from euro appreciation and global supply-chain fragmentation, while ruling out a near-term policy rate increase.