[12] Liquidity buffers maintained by the money market funds currently support trading volumes in the short-term unsecured money market. Liquidity placed by money market funds with banks also enter the formation of some money market rates, like the € [13] The rationale for expanding the purchases of non-financial commercial paper in the spring is explained in: de Guindos, L. and Schnabel, I. (2020), “The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19”, ECB Blog, 3 April. [14] See Schnabel, I. (2020), “COVID-19 and the liquidity crisis of non-banks: lessons for the future”, on the liquidity crisis of non-banks in the spring of 2020, and what it implies for future regulatory reforms in the non-bank sector. [15] Commercial paper (CP) rates are currently at low levels due to, inter alia, a renewed demand by investors and a reduced supply by bank issuers that obtained funding in the TLTROs. [16] See Garcia-de-Andoain, C., Heider, F., Hoerova, M. and Manganelli, S. (2016), “Lending-of-last-resort Is As Lending-of-last-resort does: Central Bank Liquidity Provision and Interbank Market Functioning in the Euro Area”, Journal of Financial Intermediation, 28, pp. 32-47. [17] Robatto, R (2020). “Public Liquidity and Bank Lending: The Perils of Large Interventions”, Working Paper. [18] The importance of excess liquidity levels for money market functioning was exemplified by the repo market turmoil in the United States in September 2019. It was in part driven by declining levels of Fed excess liquidity.
We have had considerable benefit of households and companies, savers and investors, expecting a future rate of inflation that is on a reasonably low level and that their expectations are more or less consistent with one another. This has contributed to a completely different stability in price setting and wage formation over the past two decades than in the two decades prior to this, which has in turn contributed to inflation falling at the same time as we have had more stable and much higher real wages on average. That high and fluctuating inflation has disappeared as a disturbing factor should also have meant that financial decisions by households and companies have in general become simpler and better. But the key to this type of development is a joint anchoring of inflation expectations and a condition for this is that the inflation target of 2 per cent is perceived as credible. This is the problem that has marked the Riksbank's monetary policy in recent years. In January 2015, when I became a member of the Executive Board, we were in an unfortunate situation where inflation expectations in the longer run were losing their anchorage around the 2 per cent target. Monetary policy had been expansionary for a long time and further measures were needed to strengthen confidence in the target and to send very clear signals about the Riksbank’s intentions to bring inflation back to 2 per ce nt.