With interest rates likely to remain low for the foreseeable future, even once monetary policy normalises, banks will have to revisit their business models to ensure continued profitability over the medium term. The monetary policy reaction Faced with activity below potential and inflation below its objective, the ECB has sustained accommodative monetary policy since the onset of the crisis.
We have responded to the fall in equilibrium rates and the negative output gap by cutting our main refinancing rate to zero and our deposit rate into negative territory. Our targeted long-term refinancing operations have encouraged lending by banks and helped to mend the transmission mechanism. More recently, our asset purchase programme (APP) has sought to influence a broader range of interest rates.