How can we avoid a negative equilibrium of low growth and low inflation?
At its meeting on 12 September 2019, the Governing Council of the ECB concluded that economic growth in the euro area will continue to be subdued. The expansion of global trade has stalled, while the headwinds in manufacturing, in particular, have proven more long-lasting than previously forecast. Inflation has persistently fallen short of the ECB's price stability objective. The Governing Council noted that the growth outlook remains beset by prominent downside risks and that inflationary pressures are projected to stay muted.
In response, the Governing Council took the decision at its September meeting to substantially increase its monetary accommodation, lowering the interest rate on the ECB deposit facility by 10 basis points, to -0.50%, and strengthening its forward guidance to indicate that it now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge towards the price stability objective, and such convergence has been consistently reflected in underlying inflation dynamics. In addition, the Governing Council announced that net purchases under the asset purchase programme will be relaunched at a monthly pace of EUR 20 billion as from 1 November. It also took the decision to ease the modalities of the longer-term refinancing operations as well as introduce a two-tier system for reserve remuneration on banks’ holdings of excess liquidity.
With this package of monetary policy stimulus measures, financial conditions in the euro area will remain very favourable for an extended period, contributing to the euro area's growth outlook also in the long term. ‘We should take care to avoid the sort of harmful equilibrium that arises from prolonged low inflation and zero interest rates, as this would significantly constrain the capacity for monetary policy to balance the economic cycle. This would bring about a lengthy shortfall in economic growth with respect to its potential and hinder efforts to boost employment’, stated Bank of Finland Governor Olli Rehn at the press briefing for the publication of the new issue of the journal Euro & talous.
The discussions concerning a review of the ECB's monetary policy strategy have progressed over the year, and a broad consensus has emerged over its necessity. ‘Successful implementation of the strategy review will deepen the research-based knowledge underpinning the monetary policy strategy and thus help strengthen the common understanding on policy within the Governing Council. The review process should thus contribute to better monetary policy decision-making and support consistent communication,’ emphasised Governor Rehn.
For queries pertaining to monetary policy, contact Governor Olli Rehn, tel. +358 9 183 2001. For further information on the journal Euro & talous, please contact Hanna Freystätter, Head of Division, tel. +358 9 183 2490.
About Suomen Pankki
The Bank of Finland is the national monetary authority and central bank of Finland. At the same time, it is also a part of the Eurosystem, which is responsible for monetary policy and other central bank tasks in the euro area and administers use of the world’s second largest currency – the euro.
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Latest releases from Suomen Pankki
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Luottolaitosten myöntämien asuntolainojen kanta kasvoi lähes 100 mrd. euroon (99,95 mrd. euroa) lokakuussa 2019. Asuntolainakannan kasvuvauhti on kiihtynyt vuoden 2019 alusta ja oli lokakuussa 2,4 %. Viimeksi kasvuvauhti oli nopeampaa syyskuussa 2016. Asuntolainakannan kasvua vauhdittivat uudet asuntolainat, joita nostettiin lokakuussa runsaasti.
Housing loan stock nearly EUR 100 bn2.12.2019 13:00:00 EET | Press release
In October 2019, the stock of housing loans granted by credit institutions increased to almost EUR 100 bn (EUR 99.95 bn). The growth rate of the housing loan stock has picked up since early 2019. In October it was 2.4%, and a higher growth rate has last been recorded in September 2016. Growth in the stock of housing loans in October was fuelled by new housing loans and the high volume of their drawdowns.
Bostadslånen uppgick redan till närmare 100 miljarder euro2.12.2019 13:00:00 EET | Tiedote
Det utestående beloppet av bostadslån från kreditinstitut var nästan 100 miljarder euro (99,95 miljarder euro) i oktober 2019. Tillväxttakten för utestående bostadslån har ökat från början av 2019 och låg i oktober på 2,4 %. Senast var tillväxttakten snabbare i september 2016. Den livliga efterfrågan på nya bostadslån i oktober bidrog till att öka tillväxten.
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