The scenario I described above was that encountered by the Governing Council of the ECB at its meeting in the first week of June and required resolute and more expansionary monetary policy action. Such action was required because, although available indicators still pointed to medium-term inflation expectations remaining anchored at levels compatible with the definition of price stability, if inflation becomes entrenched at excessively low levels for an extended period, there is a significant risk that these expectations will ultimately be for deflation and a long period of low growth. And we know from Japan’s experience that once this disanchoring has taken place, it is very difficult to return to normal. Before June, the ECB had already reduced its policy interest rates to very low levels on several occasions. The rate on the main refinancing operations stood at 0.25% and that on the deposit facility at zero. The ECB had also embraced the policy of forward guidance, both in the area of liquidity, by announcing in advance that it would extend the fixed-rate tender procedures with full allotment, and in the area of interest rates. Here, forward guidance was introduced in July last year when the uncertainty surrounding the Federal Reserve’s intentions led many investors and analysts to anticipate a change in monetary policy stance not only in the United States but also in the euro area – a change evidently not on the ECB’s agenda. The ECB had also resorted to assets purchases before June.
The latest programme – introduced and promoted by Prime Minister Abe – included among its three pillars an ambitious monetary expansion plan which, with official interest rates close to zero, is being implemented through growth of the monetary base. Although the latest data show an incipient return to positive rates of growth and inflation, evidently monetary policy in Japan is still far removed from the threshold marking not only a change of cycle, but also a move towards a less expansionary stance, in contrast to the cases of the Federal Reserve and the Bank of England. The monetary policy of the European Central Bank The specific characteristics of current euro area monetary circumstances stem from the complexity and depth of the crisis and the slow pace at which the euro area is emerging from 2  BIS central bankers’ speeches  the crisis in comparison with other areas. Following the negative data of 2012 and 2013, the projections published by the ECB last June indicate that the euro area will not recoup precrisis levels of GDP until the end of next year. However, the recovery in employment in the euro area as a whole will not be completed in 2015. Since end-2011 the inflation rate has moved on a declining trend. It stands at an all-time low and the available projections indicate that it will remain, for the foreseeable time horizon, far from the benchmark of 2% which, in the medium term, marks the price stability target governing the ECB’s actions.