Our standard and non-standard measures ensure price stability in the euro area. While our standard measures signal the monetary policy stance, our non-standard measures ensure the transmission of the desired policy stance to the real economy in those market segments in which the transmission is impaired. Our non-standard measures ensure that despite increased liquidity demand, financial institutions are able to continue lending to clients. However, misconceptions persist related to the Securities Markets Programme, our programme for intervening in government bond markets. The SMP deliberately addresses the appropriate transmission of our monetary policy to the real economy in market segments which are impaired. Government bonds are crucial for the transmission of monetary policy, via their status as a benchmark for borrowing by banks. Put simply, left unaddressed, the malfunctioning of sovereign bond markets’ could block the bank lending channel. An important difference with Quantitative Easing programmes is that the liquidity injected into the banking system via the SMP is sterilised by the ECB through regular liquidity absorbing operations. The ECB has been widely recognised as an institution capable of timely, decisive and convincing action during tumultuous times. We see this as a mark of distinction. However, it would be erroneous to derive from this that it should be a political institution in charge of running the euro area economy. It cannot be and should not be. The ECB is a central bank, committed to its mandate to preserve price stability over the medium term. It is not the fiscal lender of last resort to sovereigns.
As you will no doubt know, quantitative easing aims to depress a range of longer-term yields and raise asset prices, so boosting demand. Our analysis suggests that our first £ billion of asset purchases reduced the yields on gilts and corporate bonds by around a percentage point2. Studies for the United States, using a similar methodology, find comparable effects from the Federal Reserve’s large-scale asset purchases, which is comforting. The asset purchases also have the effect of boosting banks’ holdings of the most liquid asset, central bank reserves, which may be of particular value at the current juncture. While one cannot be confident about the impact of our earlier purchases on the real economy, our analysis points to a peak effect on output of 1½–2 per cent and of ¾–1½ percentage points on inflation. At this juncture at least, we have no reason to believe that, suitably pro-rated, the current phase of purchases will be greatly different in their effect on either asset markets or on the real economy. 2  For a summary of the evidence, including references to related studies, see Michael Joyce, Matthew Tong and Robert Woods (2011), “The United Kingdom’s Quantitative Easing Policy: Design, Operation and Impact” Bank of England Quarterly Bulletin, 51(3), 200–212. BIS central bankers’ speeches  3  Several commentators have suggested that the effectiveness of quantitative easing could be enhanced by spending the newly created money on something other than government debt.