Structurally, many studies 3 suggest that the Phillips curve, i.e. the relationship between inflation and fluctuations in economic activity or unemployment, appears to have flattened since the 1980s [slide]. Inflation seems less responsive to changes in economic activity in advanced countries, notably because of globalisation,4 which appears to exert downward pressure on inflation via the decline in imported goods prices and competition from low-wage countries. But a flatter Phillips curve does not call into question this relationship: we are in no doubt about the way we are heading: the recovery and job creations will lead to higher wages and, ultimately, more inflation. But we nevertheless remain less certain as to the speed of this adjustment. We are both confident about the effectiveness of our monetary policy and willing to be patient regarding the time it will take. II. What prospects for the future? Let me now turn to the consequences for our monetary policy. You are well aware that we at the ECB’s Governing Council will decide this autumn on the re-calibration of our policy instruments beyond the end of the year – and, I quote Mario Draghi, “probably the bulk of these decisions will be taken in October”. We are now faced with a simple requirement, in line with our mandate to maintain price stability, and the progress towards our inflation target: we have to reduce the intensity of our net asset purchases, while maintaining overall a substantially accommodative monetary policy.
Our forward guidance is clear as to the sequencing: “we expect [the key ECB interest rates] to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.” There is no doubt within the Governing Council about this sequencing. In all events, we should not consider raising interest rates until we have reached a sustained adjustment in the path of inflation. 4/ The fourth instrument is the provision of liquidity to financial institutions. In October 2008, we introduced the fixed-rate full allotment policy in all our regular refinancing operations. It was designed in order to guarantee banks’ access to liquidity – and this policy is still active today, for both 1-week or 3-month operations. The maturity of this liquidity provision was then extended with the launch of 3-year long-term refinancing operations (LTROs) and, later, targeted longerterm refinancing operations (TLTROs). The latest series of TLTROs provided banks with up to 4year funding at attractive rates – as low as –0.4% – in order to further ease financing conditions. In September 2017, a total of EUR 760 billion is still lent to euro area banks through TLTROs, which is substantial, over 7% of euro area GDP. Before I conclude, let me add a few words on the recent evolution of the euro. A number of factors play a role; monetary policy is only one of them.