15  In particular, the Federal Reserve states that, under its new strategic framework, when inflation stands persistently below 2% it will attempt to keep inflation moderately above 2% for a certain time.12 With regard to the ECB, in January this year it announced the launch of a review of its monetary policy strategy. This review has been delayed by the emergence of COVID-19 and is expected to extend into next year. Since this review is ongoing we still do not know what its conclusions will be, but I can confirm that this is an open process: both the ECB and the Eurosystem national central banks are performing a large amount of analysis and requesting the opinion of civil society, academic economists and other professional and social groups. One of the key aspects of this review will be the definition of price stability. The current inflation objective, consisting of rates below, but close to, 2%, may be reformulated. On one hand, it may be necessary to clarify the specific level of inflation that is targeted, in order to make it easier for economic agents to understand.
The risk of such a contraction stemmed mainly from two factors: on one hand, the possibility that money markets would deteriorate to the point of compromising banks’ access to them; and, on the other, the possible reluctance of banks to take on fresh risks in the form of loans against a background of enormous economic uncertainty. To address the first of these risks, the ECB launched a series of longer-term refinancing operations (LTROs). These provided banks with “bridge financing” under advantageous conditions until late July, for when a substantial tender I shall now refer to was scheduled. That stabilised funding costs for the banking sector at a juncture, as I stated, of great uncertainty. As to the second risk, namely banks’ reluctance to extend new loans in such a complex economic environment, the ECB already had an instrument to encourage banks to provide credit: the so-called “targeted longer-term refinancing operations” (TLTRO-III). This programme affords banks financing under particularly advantageous conditions, provided they meet certain lending targets to households and firms (excluding, in the former case, lending for house purchases). With the onset of the pandemic, this programme was modified to make it more attractive to banks, enabling them to obtain funding temporarily at an interest rates as low as -1%, under the condition of not reducing their eligible volume of credit. To obtain liquidity in the Eurosystem’s refinancing operations, including TLTRO-III, participating banks must nevertheless pledge collateral in order to protect the Eurosystem from potential bank failures.