Currently, Eurosystem monetary policy helps improve the otherwise lackluster outlook for economic growth and price stability in the euro area. Low or even negative interest rates favor spending over saving. Asset purchases (or quantitative easing) help fix the monetary transmission mechanism. The provision of long-term liquidity to the banking sector supports lending to the private sector.
Forward guidance affects long-run interest rate and inflation expectations. Let us not forget that the ECB’s readiness to do “whatever it takes to preserve the euro,” as announced in mid-2012, was undoubtedly the decisive element in reestablishing confidence in sovereign bond markets – a precondition for recovery.