At the same time, clear risks to GDP growth had emerged for the fourth quarter of 2020, linked primarily to the latest news about the plans for more severe lockdowns from November onwards. The ECB had already built the infrastructure needed to operate the single monetary policy, had gained the trust of financial markets, and had successfully organised and was running a network of Eurosystem technical committees. Global financial conditions were broadly unchanged in both advanced and emerging economies. The primary objective of the ECB’s monetary policy is to maintain price stability. Bank lending rates remained very favourable, close to their historical lows. The ECB's monetary policy The implementation of the European Central Bank's monetary policy rests on two pillars. The dispersion across euro area ten-year sovereign yields was at its pre-pandemic level, which itself had been far below the levels observed in previous years due to the substantial convergence in bond spreads in those countries that had been hit hardest by the sovereign debt crisis. Improved risk sentiment had also put renewed downward pressure on the US dollar, with positioning data pointing to risks of further US dollar depreciation. These new fiscal measures clearly went beyond those assumed in the September staff projections. According to the survey, banks’ cost of funds and balance sheet situation had not contributed to the tightening, underscoring the positive impact of monetary policy support on bank funding conditions. Oil prices had increased slightly, by 1.8%, since the Governing Council’s September monetary policy meeting, to stand at USD 39.8 per barrel on 26 October 2020, after trading in a narrow range. This was also clearly visible in corporate bond markets. Discover more about working at the ECB and apply for vacancies. Directorate-General for Internal Policies . conf.mon.pol@ecb.europa.eu, We are always working to improve this website for our users. To do this, we use the anonymous data provided by cookies. Accordingly, measures of underlying inflation were likely to remain subdued in the context of weak demand and significant slack in labour and product markets. Times are Central European Summer Time (UTC+2), Philip Lane, Chief Economist, European Central Bank, Christine Lagarde, President, European Central Bank, Chair: Isabel Vansteenkiste, European Central Bank, Ricardo Caballero*, Massachusetts Institute of Technology (MIT) - Department of Economics, Chair: Massimo Rostagno, European Central Bank, Annette Vissing-Jorgensen*, University of California, Berkeley. Such structural policies were particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions. The Committee meets on a regular monthly basis and minutes of its meetings are released on the Wednesday of the second week after the meeting takes place. The conference is the ECB’s annual flagship event focusing on frontier issues of monetary policy. Sovereign spreads had declined further amid expectations of additional monetary and fiscal support. At the same time, it was underlined in this context that it was important to stress the temporary nature of the current inflation dynamics, partly owing to special factors such as exceptional patterns in seasonal sales and temporary tax reductions. At the same time, it was underlined that more than half of the PEPP envelope was still available to conduct ongoing purchases in a flexible manner in case of renewed market turbulence. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. * Members not holding a voting right in October 2020 under Article 10.2 of the ESCB Statute. Unlike in spring, however, so far there had been no widespread flight into safe-haven assets. The ECB is directly accountable to the European Parliament. Monetary policy Recalibration of monetary policy instruments On 10 December 2020 the Governing Council decided on recalibrating the ECB’s monetary policy instruments to contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability. High-frequency mobility indicators for transport, retail and recreation had started to weaken. Read about the ECB’s monetary policy instruments and see the latest data on its open market operations. Learn more about how we use cookies, We are always working to improve this website for our users. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. It was pointed out that 35% of all items were currently posting negative growth rates and underlying price pressures were also weak, raising concerns over a lasting impact. However, the momentum had slowed more recently and downside risks were related to increasing COVID-19 infection rates globally and to geopolitical factors. its latest monetary policy committee meeting. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remained an attractive source of funding for banks, supporting bank lending to firms and households. Study on the "Options for the ECB’s Monetary Policy Strategy Review" 02-12-2020 - 17:42. The results of the euro area bank lending survey signalled a tightening of credit standards in the third quarter of 2020, mainly on account of the deterioration in banks’ perceptions of the risks to the macroeconomic environment and borrowers’ creditworthiness. Moreover, it was highlighted that HICP inflation excluding energy and food had fallen to a new low of 0.2% in September, owing to lower non-energy industrial goods and services inflation. However, the incoming data pointed to a more severe slowdown in growth momentum and a weakening of underlying inflation dynamics compared with the previously expected recovery path. Concerns were also expressed about the possibility of non-linear effects arising from financial amplification channels and about the impact of the pandemic on balance sheet positions of firms, households, banks and governments, particularly given the persistence of the crisis. Key figures and latest releases at a glance. Pending that information, Mr Lane proposed leaving the overall monetary policy stance unchanged and reconfirming the full set of existing monetary policy measures. In terms of categories, the decline was being driven by the extension of seasonal summer sales to non-summer items, a fall in travel-related prices and more negative energy inflation. In this context, members emphasised the role of both national and European fiscal policy in cushioning the impact on the economy of necessary containment measures. The October bank lending survey signalled a tightening of credit standards, primarily related to a deterioration in banks’ perceptions of the risks underlying the macroeconomic environment and borrowers’ creditworthiness. ecb.europa.eu. A significant fraction of bank lending had been concentrated in those parts of the loan market that were benefiting from government guarantees, and the large and broad-based participation in the targeted longer-term refinancing operations (TLTROs), including the latest operation, had provided banks with significant funding cost relief. Retail sales had also softened in the summer months, and manufacturing and services PMIs for September and October suggested that the pace of recovery across the euro area had slowed. It was also remarked that the rate of infections appeared to be more relevant for economic activity than the stringency of containment measures, which varied considerably. The biggest announcement of the ECB’s monetary policy decision announced yesterday was the increase in the pandemic emergency purchase programme (PEPP) by €500 bn to a total of €1,850 bn and extended the time horizon of these net purchases atleast till the end of March 2022. Since the September monetary policy meeting, market-based indicators of longer-term inflation expectations had halted their recovery and remained broadly stable around their pre-pandemic levels. In fact, a recent survey by Pollard (2004) found that 79 out of 88 central banks made monetary policy by committee. It was stressed that any sign of complacency – even inadvertent – could be detrimental in the present circumstances. Provided that the funds were deployed for productive public spending and accompanied by productivity-enhancing structural reforms, the NGEU programme would contribute to a faster, stronger and more uniform recovery and would thereby enhance resilience and the growth potential of EU Member States’ economies, supporting the effectiveness of monetary policy in the euro area. Market-based indicators and survey-based measures of longer-term inflation expectations had remained broadly unchanged at low levels. In this context, it could be emphasised that monetary policy was removing obstacles to the expansion of fiscal policy by supporting favourable financing conditions and the proper functioning of financial markets. It also had to be acknowledged, however, that an accommodative monetary policy stance could create the temptation for governments to enter into commitments that were difficult to undo and thereby increase expenditure beyond what was necessary to deal with the pandemic, exacerbating structural deficits and damaging the long-term sustainability of public finances. It was noted that taking monetary policy decisions in December would be consistent with prevailing market expectations. With regard to the monetary policy measures taken since early March, members widely agreed that they were helping to preserve favourable financing conditions for all sectors and jurisdictions across the euro area, thereby providing crucial support to underpin economic activity and to safeguard medium-term price stability. Retail sales had recovered strongly around the world, while global consumer confidence had risen from its lowest level but still remained very weak. On the other side, renewed lockdown measures in different countries on the back of a surge in new coronavirus (COVID-19) cases, especially in the euro area, were increasingly reflected in asset price valuations. Financial markets had been driven by two opposing forces. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Following a strong, but partial and uneven, rebound in the third quarter, the rise in COVID-19 cases and the associated intensification of containment measures was weighing on activity and constituted a clear deterioration in the near-term outlook. Release of the next monetary policy account foreseen on Thursday, 14 January 2021. The novel coronavirus, continues to be a great concern for global markets, and the risk of virus to affect economic activities is increasing day by day. Weaker balance sheets and increased uncertainty about the economic outlook were weighing on business investment. Moreover, near-term price pressures would remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to lower wage pressures and the appreciation of the euro. The biggest announcement of the ECB’s monetary policy decision announced yesterday was the increase in the pandemic emergency purchase programme by 500 billion pound to a total of 1,850 billion pound and extended the time horizon of these net purchases atleast till the end of March 2022. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the Committee on Economic and Monetary Affairs ( ECON) ahead of the Monetary Dialogue with the ECB President on 19 November 2020. Turning to the euro area, output had rebounded strongly in the third quarter of 2020. In the current environment, the risks surrounding the euro area growth outlook were clearly tilted to the downside. After a long period of relatively benign conditions, in the most recent data financial markets were pricing a more pessimistic pandemic outlook. On one side, reduced risks of a contested presidential election in the United States and expectations of a large fiscal stimulus programme under a potential Biden presidency had boosted risk sentiment and revived the reflation trade. The newly announced measures were taken "in view of the economic fallout from the resurgence of the pandemic," the ECB said in a statement after a monetary policy meeting. The latest data supported the view that the recovery had been losing steam in the euro area. TLTRO III was seen to provide continuous support to bank lending, as evidenced by the higher than expected take-up in the latest operation. This included a new round of macroeconomic projections, which would allow a reassessment of the economic outlook and the balance of risks. Second, I will discuss the respective roles of the ECB’s monetary policy and of fiscal policy in the current environment. Looking at survey-based longer-term inflation expectations, as reported in the latest ECB Survey of Professional Forecasters (SPF), inflation expectations five years ahead had remained broadly stable at around 1.6%-1.7%. Find out how the ECB promotes safe and efficient payment and settlement systems, and helps to integrate the infrastructure for European markets. Monetary Policy Summary, December 2019 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. While the September baseline scenario had assumed some resurgence of the virus and the need for ongoing containment measures, recent developments were seen as constituting a clear downside risk to the projections. With markets having stabilised since the introduction of the pandemic-related monetary policy measures in March, it was noted that additional asset purchases might not have the same impact on financial conditions and real economic activity as they had had earlier in the year. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. As in March, the economic situation was once again changing rapidly. Developments in the global composite output Purchasing Managers’ Index (PMI), excluding the euro area, indicated that the recovery in activity was quite strong up to July but had flat-lined in September. In the United States, stock markets had increased by 5% since opinion polls started to point to a victory for the Democratic Party in the presidential election on 3 November 2020. Against this background, members argued that, looking ahead, it would be important to consider the possibility that the pandemic might have longer-lasting effects both on the demand side and on the supply side, reducing potential growth. We expect the ECB to keep some of its powder dry, and reconsider the end of … In bond markets, heightened expectations of fiscal stimulus in the United States had led to a notable steepening of the US Treasury curve, also reflecting rising inflation expectations. The ECB President, as a standing practice, appears four times a year before Parliament’s Committee on Economic and Monetary Affairs (ECON) to explain the ECB’s policy decision… At the same time, markets were seen to remain fragile and could face a correction in pricing – for example in the event of a no-deal Brexit, a further worsening of the pandemic or if an agreement on the disbursement of funds under the NGEU plan was delayed. At the same time, it was recalled that the economy had rebounded very strongly after the lockdowns in the first wave of the pandemic and that a similar dynamic recovery might be expected in the future. MINUTES OF THE MONETARY POLICY COMMITTEE MEETING HELD ON 9 … Ana Maria Lupu At the same time, the Governing Council should clearly signal that on the basis of its updated assessment in December, it would recalibrate all of its instruments, as appropriate, to ensure that financing conditions remained favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path, thereby fostering the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry. At the same time, there had also been a reduction in inflation in other items in the price index, which was considered a cause for concern. The conference features research presentations and keynote speeches. While banks indicated that their funding and balance sheet conditions remained supportive, higher risk perceptions were weighing on loan creation. Get an overview of what the European Central Bank does and how it operates. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Since the start of the pandemic, the weakening in employment conditions had been particularly marked in labour-intensive sectors such as accommodation, food, transportation and warehousing. Financial vulnerabilities in the corporate sector, in particular, could have negative ramifications for banks’ balance sheets and give rise to adverse real-financial feedback loops. Market-based indicators and survey-based measures of longer-term inflation expectations remained broadly unchanged at low levels. Euro area real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020. Turning to trade, high-frequency data pointed to a strong rebound in the third quarter of 2020 and early indications for the fourth quarter were also positive. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. The conference is the ECB’s annual flagship event focusing on frontier issues of monetary policy. Vaccine … In addition, the committee-based ECB replaced 12 central banks, most of which had previously been run by individual governors. In its communication the Governing Council needed to highlight that the downside risks to the baseline scenario of the September projections had clearly increased, shifting the balance of risks further downwards, and that the Governing Council was carefully evaluating the worsening of the pandemic and the associated intensification of government containment measures with regard to their implications for the near-term outlook. Regarding fiscal policies, the fiscal stance was expansionary in 2020 and the latest fiscal plans for 2021 foresaw larger support than previously expected. These purchases contributed to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. ECB TASKED WITH WEAKENING THE EURO. However, the strength of the rebound might also have reflected that countries had eased containment measures too much too soon. As a result, growth figures for 2021 as a whole could be adversely affected. Against this backdrop, members supported the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the full set of existing monetary policy instruments. It was pointed out that the SPF survey round for the fourth quarter of 2020 had been conducted at the beginning of October, before the resurgence of the pandemic and the widespread re-introduction of containment measures, and the results therefore needed to be treated with caution. It was noted that euro area financial markets had been relatively calm, with financial conditions – including exchange rate developments – being broadly stable and financing conditions for banks, households and firms remaining very favourable. Reproduction is permitted provided that the source is acknowledged. With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction that broad money (M3) growth continued to reflect domestic credit creation and the ongoing asset purchases by the Eurosystem. In the euro area, by contrast, inflation expectations had trended lower since the Governing Council’s previous monetary policy meeting, thereby also putting downward pressure on yields. Read about the ECB’s monetary policy instruments and see the latest data on its open market operations. The degree of accommodation currently embedded in euro area sovereign bond markets was practically unprecedented since the global financial crisis, both in its scale and its breadth across countries. Headline inflation had declined from -0.2% in August to -0.3% in September, with inflation excluding energy and food decreasing from 0.4% to an all-time low of 0.2%. It could not be excluded that the euro area, or at least some countries, would experience a double-dip recession. On the basis of oil price dynamics and taking into account the temporary reduction in German VAT, headline inflation was likely to remain negative until early 2021. It was remarked that the flexibility embedded in the PEPP was essential to its continued success. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Monetary Policy of The ECB • Price Stability is the main goal of The ECB’s Monetary Policy. Looking ahead, the outlook for services was gloomy, while industry appeared more resilient. Turning to euro area trade, exports and imports of goods had continued their recovery. Dig deeper into the ECB’s activities and discover key topics in simple words and through multimedia. At the current juncture, members viewed the monetary policy stance as highly accommodative and appropriate. Look at press releases, speeches and interviews and filter them by date, speaker or activity. Browse the ECB’s reports, publications and research papers and filter them by date or activity. Turning to euro area developments, members underlined that there had been both positive and negative news since the last monetary policy meeting. In the weeks to come, key information would be received. In particular, it was regarded as positive news that additional fiscal stimulus was being announced at the same time as new measures to contain the spread of the virus. Furthermore, members widely agreed that, given the sharper slowdown in growth momentum and the weakening of underlying inflation dynamics compared with what had previously been expected, as well as the deterioration in the balance of risks, it would be warranted to recalibrate the monetary policy instruments in December. Market participants had pointed to three main reasons to explain why the spreads had fallen further. Accordingly, the amplification of adverse real-financial feedback loops remained a material risk and needed to be closely monitored. This provided tangible evidence of how the common European response to the crisis had helped to alleviate pressure on euro area sovereign funding and hence financing conditions. Therefore, contrary to the early phase of the crisis, the joint fiscal and monetary policy responses in the euro area had succeeded in providing firm protection against the risks of fragmentation and of an unwarranted tightening of financial conditions. As a result, the growth trajectory could be bumpier than previously projected. Banks tend to use less liquid assets as collateral with the ECB, but this does not mean necessarily more risk for the ECB for which liquidity is not important . Mr Dombrovskis, Commission Executive Vice-President**, Ms Senkovic, Secretary, Director General Secretariat, Mr Smets, Secretary for monetary policy, Director General Economics, Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics, Mr Bracke, Deputy Director General Communications, Ms Rahmouni-Rousseau, Director General Market Operations, Mr Rostagno, Director General Monetary Policy, Mr Sousa, Deputy Director General Economics. The European Central Bank’s (ECB) monetary policy meeting today will be the main focus of euro traders as … Although fiscal policy measures were supporting households and firms, consumers were cautious in the light of the pandemic and its ramifications for employment and earnings. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The euro area economic outlook was seen to depend crucially on the effectiveness of administrative measures and the infection dynamics of the pandemic, with the magnitude and duration of a further downturn being very uncertain. It was emphasised that, in the present environment, monetary policy in part operated by facilitating fiscal expansion through keeping financing costs affordable, and both policy domains were working “hand in hand”. Instead, euro area sovereign bond spreads had compressed further and corporate bond spreads had remained stable. No data released so far had incorporated the recent announcements of further containment measures. The view was expressed that fiscal initiatives to address non-performing loans and ensure an adequately capitalised banking sector should be encouraged, while monetary policy was playing its part in supporting favourable financing conditions and ample liquidity in the banking sector. The relatively muted reaction of markets to the second wave of the pandemic was seen as evidence of the effectiveness of the ECB’s monetary policy measures in containing tail risks, including the risk of market fragmentation. The winter months would be challenging in terms of limiting the spread of the virus and a sequence of temporary “circuit breaker” lockdowns might prove to be necessary. Get an overview of what the European Central Bank does and how it operates. 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