The second challenge concerns the effectiveness of our standard monetary policy measures in steering inflation in line with our medium-term price stability objective. With monetary policy rates at their effective lower bound, the financing conditions for sovereigns, banks and large corporates have become rather favourable. However, our accommodative monetary policy stance appears not to feed through to lending rates for households and smaller firms.
This impairment in the bank lending channel creates its own challenges for monetary policy. The third challenge is of longer-term nature and goes beyond recent monetary policy decisions. As the on-going recovery remains moderate despite substantial policy support, some observers have recently pointed to the risk of long-term economic stagnation, not just for the euro area but also for some other advanced economies.