Concluding remarks Let me conclude, starting with a quote from the monetary economist and economic historian Charles Goodhart who back in 2008 used a metaphor that describes well the conundrum we face with liquidity buffers that are not used:[35] “The weary traveller who arrives at the railway station late at night, and, to his delight, sees a taxi there who could take him to his distant destination. He hails the taxi, but the taxi driver replies that he cannot take him, since local bylaws require that there must always be one taxi standing ready at the station.” In the context of impediments to liquid asset usability, the issues go beyond local bylaws: low internal risk appetites to let regulatory ratios fall hardwired in banks’ behaviours, market stigma amplified by stringent spot disclosures of volatile ratios, uncertainty about the eventual size of the shock. At the same time the benefits of liquidity regulation are also clear. Banks entered the Covid-19 crisis with strong liquidity – providers of funding to banks did not express any doubt on this front. To understand better the issues and to encourage debate for potential solutions the Bank and the PRA published a Discussion Paper on 31 March this year. [36] I look forward to your engagement. Many thanks to Marzio Bassanin and Artur Kotlicki for help in preparing this speech.
Underlying price pressures in the euro area are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery, as well as subdued monetary and credit dynamics. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability. The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating in particular to higher commodity prices as well as stronger than expected increases in administered prices and indirect taxes, and downside risks stemming from weaker than expected economic activity. The ECB’s monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability. It thereby provides support to a gradual recovery in economic activity. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary. In line with the guidance provided in July, the Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, the ECB will monitor all incoming information on economic and monetary developments and assess any impact on the medium-term outlook for price stability.