Reaching deeper into the monetary policy toolbox At the time of the last Watchers’ conference policy rates were already moving towards zero and we had reached a point where there was little room for manoeuvre with the standard instrument of monetary policy.
We did eventually reach the effective lower bound later in the year by lowering incrementally the corridor of policy rates in June and September. When a central bank’s ability to steer the overnight rate is limited, it can still alter its monetary stance by means of directly influencing expectations. This is the context in which the ECB introduced forward guidance in 2013.