Christian Noyer: The euro in 2000 - principal features of the European Central Bank’s monetary policy  Speech by Mr Christian Noyer, Vice-President of the European Central Bank, at the Recoletos Forum, held in Madrid, on 29 June 2000. *  *  *  Ladies and gentlemen, It is a great pleasure for me to speak to you here at the Recoletos Forum in Madrid. In order to provide you with the perspective of the European Central Bank (ECB) on the performance of the euro as the single currency of the euro area, it will be helpful if I begin with a review of the objective of the single monetary policy and its underlying strategy, as well as the operational framework of the Eurosystem (ie the ECB and the 11 national central banks of the countries which have introduced the euro). After I have made some comments both on monetary and economic developments which have taken place in the euro area and on the risks to price stability as they have appeared in the first months of 2000, I shall outline the responsibilities of the individual policy areas in achieving and sustaining high growth in an environment of price stability. I shall then discuss the euro’s role in the financial markets. Finally, I shall conclude with a view on the general prospects for the euro area and its single currency. The monetary policy objective, strategy and operational framework As is well known, the main objective of the Eurosystem is the maintenance of price stability.
In this regard, the risks to price stability remained persistently, up until our recent decision on interest rates, on the upside. According to the forecasts currently available, consumer price inflation in 2000 and 2001 is generally projected to be slightly below 2%. This is clearly higher than was expected in the respective forecasts at the end of last year and early this year. We should, of course, bear in mind that these forecasts are snapshots of economic prospects as they appear at a particular point in time. They are typically surrounded by a fair degree of uncertainty and they are highly conditional on a number of specific assumptions. Oil prices and exchange rates are prominent examples of such forecast assumptions. The movements in these variables in the past few months show how quickly such assumptions can move out of line with actual developments. Moreover, in the case of the forecasts currently available, some of these explicitly assume that short-term interest rates will rise over the forecast period. I think that it is fair to say that without this assumption projected inflation would most likely have been higher in the forecasts concerned. Thus, the inflation outlook for the euro area gave a very clear signal to monetary policy: namely that there was no reason for complacency and that monetary policy had to react. The developments in oil prices and the exchange rate have led to a strong rise in import prices.