The Bank of Finland
- represents Finnish monetary policy expertise and knowledge of the Finnish economy within the Eurosystem.
- explains in Finland how the single monetary policy affects the national economy and what it means for economic decision-making in Finland.
The Governor of the Bank of Finland is a member of the Governing Council of the ECB, and therefore the Bank of Finland participates in the decision-making of the Eurosystem at the highest level. The members of the Governing Council are the governors of the euro area national central banks (NCBs) and the six members of the ECB’s Executive Board. The members are not allowed to pursue national interests; they must consider the best interests of the euro area as a whole.
At the beginning of 2015, a system of rotating voting rights was introduced for the Governing Council of the ECB. In the rotation system, euro area countries are divided into two groups according to the size of their economies, and in each group the voting rights rotate among the central bank governors.
All governors continue to attend the meetings of the Governing Council of the ECB and have the right to speak at the meetings. The Governing Council takes all monetary policy decisions. Monetary policy meetings are held according to a six-week cycle, effective since the beginning of 2015. The Governing Council may make monetary policy decisions at any time, even outside of scheduled meetings.
At its monetary policy meetings, the Governing Council decides on the stance of monetary policy required to maintain price stability in the euro area. Monetary policy decisions may relate to both standard monetary policy, such as the key ECB interest rates, and non-standard monetary policy measures, such as asset purchases.
The most important of the key ECB interest rates is that on the main refinancing operations (MROs). The Governing Council also decides on the interest rates for the standing facilities, i.e. the marginal lending facility and the deposit facility. Short-term market rates follow movements in the key interest rates. Non-standard monetary policy measures can make a contribution to the transmission of monetary policy and ease the monetary policy stance in a situation where the key interest rates are at their lower bound.
After each monetary policy meeting, the ECB holds a press conference in which the President of the ECB explains the rationale for the monetary policy decision. A decision on monetary policy does not necessarily mean a change in the policy.
The introductory statement by the President of the ECB covers all key factors on which the Governing Council decision is based. The President first explains the economic analysis, and then proceeds to the monetary analysis. In addition, the statement includes a brief overview of economic projections and provides information on monetary policy operations and bank liquidity. The introductory statement also includes assessments of fiscal policies and structural reforms in the euro area countries.
After reading the introductory statement, the President takes questions from the media. On the basis of the President’s answers, market participants try to predict the direction of forthcoming monetary policy decisions. A tight monetary policy stance is termed ‘hawkish’ and a more relaxed stance ‘dovish’. The Governing Council of the ECB may also inform the audience of future monetary policy. The aim of this forward guidance, as it is called, is to manage expectations of monetary policy and hence strengthen the impact of non-standard monetary policy measures.
The transparency of monetary policy decisions was enhanced at the beginning of 2015 when the ECB started publishing accounts of discussions at the Governing Council’s monetary policy meetings. The accounts are released four weeks after each meeting, before the next monetary policy meeting. The minutes of the meetings are drafted separately and enter the public domain only after 30 years.
As an active contributor to monetary policy decisions, the Bank of Finland plays two important roles. On one hand, it represents Finnish monetary policy expertise and knowledge of the Finnish economy within the Eurosystem. On the other hand, it explains in Finland how the single monetary policy affects the national economy and what it means for economic decision-making in Finland.
Bank of Finland experts assess economic developments and policies in the euro area and Finland and compile related background information and forecasts. The Bank also develops and upgrades tools used in forecasting and other economic analyses, such as macroeconomic models.