- Monetary accommodation is still needed to ensure the continued sustained convergence of inflation towards the price stability objective.
- As rising protectionism casts a shadow over international trade, the EU provides backing for the trade policy of countries like Finland who are dependent on exports.
In June 2018, the Governing Council of the ECB announced its intention to phase out net purchases under the asset purchase programme by the end of the year, if inflation continues to converge towards the price stability objective over the medium term. This outlook is supported by favourable economic momentum in the euro area, which has boosted employment and accelerated wage growth. As monetary policy is normalised, the Governing Council will gradually reduce its use of non-standard policy measures. The need for extended forward guidance on monetary policy will also diminish, once inflation has reached sufficient progress towards the price stability objective.
The Governing Council's monetary policy stance will remain accommodative for an extended period, even if policy has entered a path of gradual normalisation. Beginning from 2019, the Governing Council will proceed to purchase assets by reinvesting the principal payments from all maturing securities purchased under the programme. This will maintain the sizeable balance sheet of the Eurosystem and will contribute to the accommodative stance of monetary policy and support the capacity of euro area banks to provide the private sector with financing. The Governing Council announced that key interest rates will remain at their present levels until at least through the summer of 2019.
‘Accommodative monetary policy is still needed in the euro area, for now, to ensure the sustained convergence of inflation towards the price stability objective over the medium term. Growth in the euro area remains strong, but underlying inflation is subdued and inflation expectations are low’, stated Bank of Finland Governor Olli Rehn at the press briefing for the publication of the new issue of the journal Euro & talous. ‘Pursuing normalisation gradually will allow for the close assessment of its development and the avoidance of unforeseen negative effects on growth and employment’, stated Governor Rehn.
Rising protectionism has cast a shadow over global trade and challenged its rules-based multilateral arrangements. Increased tariffs, especially between China and the United States, have added uncertainty to the global economic outlook. The European Union has —at least for now — been successful in fostering agreement and looking after its trade interests. ‘The EU’s common trade policy serves as a backing for Finland, whose prospects very much rest on exports and free trade, and its internal market offers economic insurance’, said Governor Rehn.
The package of articles, which focuses on the outlook and monetary policy of the euro area, will be published in English in October at www.bofbulletin.fi.
For further information, please contact Hanna Freystätter, Head of Division, tel. +358 9 1832490.