In its monetary policy meeting last week, the Governing Council of the ECB undertook a careful review of the progress towards a sustained adjustment in the path of inflation consistent with its policy objective. The price stability objective is defined as maintaining inflation rates below, but close to, 2% over the medium term. The Governing Council confirmed it will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of EUR 30 billion until the end of September 2018. The Governing Council anticipates that, after September 2018, subject to forthcoming data confirming the medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to EUR 15 billion until the end of December 2018, and that net purchases will then end.
The Governing Council intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, which will allow for an ample degree of monetary accommodation to persist. Furthermore, the Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.
‘The monetary policy stimulus will thus be sustained until the year's end by means of continued net purchases, after that sizeable securities holdings, reinvestment of principal payments and forward guidance on key interest rates,’ said Governor Erkki Liikanen at the press briefing for the publication of the new issue of the journal Euro & talous.
‘Monetary policy cannot in itself be utilised to implement reforms in labour markets, taxation or competitiveness. The responsibility and jurisdiction for these lies with other authorities,’ stressed Governor Liikanen. ‘Monetary policy has, however, created economic conditions, such as the low interest rate environment, that are conducive to such reforms,’ he added.
Finland's economy is enjoying broadly based growth, backed by exports and domestic demand. The robust economy has also strengthened the public finances; however, measures are still required to address the challenges to sustainability in the long term, such as the effects of population ageing. ‘From the perspective of fiscal policy, it is prudent to strengthen the general government balance during periods of robust growth, perhaps even at a pace faster than predicted,’ stated Governor Liikanen.
Overall, Finland's medium-term economic outlook is brighter than before. ‘Nevertheless, it is of utmost importance to ensure that the fruits of growth are equitably distributed to all citizens. No one should be left behind, and measures that prevent exclusion should be foremost,’ concluded Governor Liikanen.