Hence, as an important step, the approval of the Cabinet of Ministers was obtained in principle to introduce comprehensive amendments to the MLA, particularly in the areas of strengthening Central Bank independence and facilitating the adoption of FIT as the monetary policy framework, in addition to other amendments to improve governance of the Central Bank, strengthen financial sector oversight and also to boost fiscal-monetary coordination. Accordingly, the Central Bank, 14  assisted by legal experts from the International Monetary Fund (IMF), is in the final stages of drafting the revisions to the MLA, which will address long standing concerns, such as the focus on non-core and quasi-fiscal activities, monetary financing as well as limits to Central Bank autonomy by way of clearly demarcating the powers and functions related to monetary policy. In addition, the remit of price stability will be elevated to the status of the prime objective of the Central Bank. The revised legislation will also facilitate institutional arrangements for setting inflation targets and improvements to monetary operations, as well as macroprudential tools. These legislative amendments would not only improve the overall focus of the mandate but would also boost the credibility of the Central Bank through an enhanced governance framework and autonomy as well as greater accountability and transparency of the Central Bank. We expect to submit the amended MLA to the Cabinet of Ministers and the Parliament for approval this year.
On making this announcement, it is crucial that I explain again the role which staff macroeconomic projections play in the ECB’s monetary policy strategy. The ECB’s primary objective is the maintenance of price stability in the euro area. Given the lags in the transmission of monetary policy to the price level, monetary policy must be forward-looking. Therefore, all analysis undertaken at the ECB is focused on the risks to future price stability. The analysis underlying monetary policy decisions is organised within two frameworks, which we refer to as the two pillars. The Governing Council’s forward-looking assessment of the economic situation and the outlook for price stability is based on both a prominent role for money, denoted as the first pillar, and a broadly based assessment of other economic and financial indicators, labelled the second pillar. The projections that will be published by the ECB as from December are, as with any conventional macroeconomic forecast or projection, derived from analytical frameworks in which money plays only a limited role, if any. Hence such projections, which mostly reflect developments in variables other than money, naturally form part of the second pillar of the ECB’s strategy. The projections help to underpin the forward-looking orientation of monetary policy. They summarise and synthesise a large quantity of information that might otherwise be too unwieldy to form a sensible basis for policy discussions.