As a consequence, forward guidance could have a contractionary, rather than an expansionary, effect on economic sentiment. Hence, in order to be effective, the announcement must emphasise the path of future policy rates, albeit conditional on the underlying state of the economy. The ECB’s forward guidance These considerations have been integral to the design of the ECB’s forward guidance. Let me explain why.
In its July meeting, the Governing Council announced that it expected the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation has been based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.