In response to the weaker outlook, the Governing Council took a series of decisions in September this year to ensure that financing conditions remain favourable. It decided to lower the interest rate on the deposit facility to -0.5%, to restart net asset purchases, to strengthen forward guidance on both these tools, to make the conditions on the targeted longer-term refinancing operations (TLTROs) more attractive, and to introduce a new regime of remuneration for excess reserves held by banks with the Eurosystem. These measures work together to keep interest rates at all maturities around levels consistent with very accommodative financing conditions. The ECB’s negative policy rates and forward guidance on their likely future path influence short to medium-term interest rates, which are used by banks to price loans to firms. In parallel, the net purchase of bonds eases medium- to long-term yields, which provide the benchmark for longterm loans to households. The more attractive conditions on the TLTROs help keep bank credit flowing to customers on affordable terms. At the same time, the Governing Council’s decisions in September showed that it was alert to the potential side effects of monetary policy. The new two-tier regime of excess reserve remuneration exempts a share of banks’ liquidity deposited with the Eurosystem from the negative interest rate applied on the deposit facility. This will also ensure that banks remain willing and able to pass on very accommodative financing conditions to the economy.
This calls for us to review our strategy and to consider how our monetary policy can best deliver on our mandate. Indeed, a question that is common to the entire community of central banks today is how to best define the medium-term objective of monetary policy, so as to ensure that expectations are firmly anchored. This could be particularly beneficial in conditions – like today’s – in which the policy space to buffer the economy from adverse developments is more limited than it was prior to the crisis. And, we are all trying to gain a better understanding of how the longer-term trends I mentioned might affect variables we monitor regularly and seek, to some extent, to control. This being said, it is premature to venture here into debates about the precise scope, direction and timeline of our review, as the matter has not yet been discussed thoroughly by the Governing Council. What I can confirm, however, is that the strategy review will be guided by two principles: thorough analysis and an open mind. This will require time for reflection and for wide consultation. The Parliament, and this Committee in particular, have traditionally offered a unique forum for dialogue, which has been enriched by the expert reports prepared ahead of the hearings.4 The ECB greatly benefitted from these debates 16 years ago when it undertook its last strategy review. This time around, we will be seeking a dialogue which is even more intense and productive than in the past.