Governor Olli Rehn
Bank of Finland
Bank of Finland Bulletin, press conference,
Helsinki 11 June 2019
The ECB’s accommodative monetary policy supports growth in euro area and achievement of the price stability objective
Last Thursday, the Governing Council of the ECB took a decision to maintain and strengthen the accommodative effects of monetary policy. From the economic analysis underlying the ECB’s decisions, two key conclusions may be drawn.
Firstly, the global economy and global politics are surrounded by protracted uncertainty, reflecting, in particular, the expanded and heightened trade war in particular between the United States and China. This trade war is unlikely to subside any time soon, due to the underlying struggle between the two countries over technological and economic supremacy.
Secondly, economic activity in the euro area has slowed and market inflation expectations have come down slightly compared with projections in the early part of the year. Inflation expectations have remained at low levels, which will hamper achievement of the ECB's price stability objective of below but close to 2%. For the achievement of the ECB’s medium-term price stability objective, inflation in the euro area may fluctuate around 2% in the short term.
The monetary policy measures taken last Thursday ensure that financial conditions will remain very favourable, supporting euro area growth. The key ECB interest rates will remain at their present levels at least through the first half of 2020. The Governing Council will continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an even longer period of time. A new series of targeted longer-term refinancing operations (TLTRO III) will start in September 2019. The purpose of these operations is to increase domestic price pressures in the euro area and thereby to support the development of inflation in the medium term.
Looking ahead, in case of a further weakening of economic activity and a materialisation of adverse contingencies, the Governing Council is determined to act and stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner. The Governing Council may, should economic developments so require, strengthen its forward guidance and its linkage to the achievement of the price stability objective, lower the monetary policy rates and introduce possible mitigating measures, and/or re-launch net purchases under the securities purchase programme.
The next monetary policy meeting of the Governing Council of the ECB will take place on 25 July 2019.