Reflections on monetary policy
Keynote speech by Philip R. Lane, Member of the Executive Board of the ECB, at Bloomberg,
London, 16 September 2019
I will divide this speech into two parts. First, I wish to review the current economic and financial
environment. Second, I will discuss the monetary policy decisions taken by the Governing Council in last
week's meeting.[1]
The euro area economy
Incoming information is signalling a more extended slowdown in euro area growth dynamics than
previously expected. As I will discuss, this slowdown is mainly due to external developments. While
domestic demand is resilient, persistent uncertainties related to protectionist policies and geopolitical
factors are taking a toll on economic sentiment and are clearly weighing on the euro area manufacturing
sector.
On the international front, the latest survey data indicate that global activity remains subdued. This is the
case in both emerging market and advanced economies, which suggests that a common factor is at play
(Chart 1). The manufacturing sector has been affected most strongly, in particular for capital and
intermediate goods, as well as for durable consumption goods. Since these goods are highly tradable, their
production is sensitive to developments in international trade, which continues to be weak (Chart 2). Global
trade and, consequently, euro area foreign demand have slowed substantially in recent quarters.
Chart 1
Composite output PMI
(diffusion index; seasonally adjusted; monthly data)
Sources: Markit and ECB staff calculations.Notes: The long-run averages are 53.0 for the euro area, 54.2 for advanced
economies excluding the euro area and 53.1 for emerging market economies. Long-run average refers to the period from
1999 onwards for euro area and advanced economies and 2005 onwards for emerging market economies. Latest
observation: July 2019.
Chart 2
Global merchandise import growth
(three-month-on-three-month percentage changes)
Sources: CPB and ECB staff calculations.Latest observation: June 2019.
One obvious source of weak trade dynamics is the uncertainty surrounding the international trading
system, due to the rise of protectionism and geopolitical factors. Although the direct effects of individual
tariff measures on economic activity have been contained, prolonged uncertainty and the prospect of an
escalation of trade disputes are indirectly affecting the world economy by weighing on economic sentiment
and global investment. Not only are protectionist measures a near-term headwind for the world economy,
they can also give rise to allocative distortions that affect the level of potential output and the potential rate
of productivity growth.
While these trade tensions are prominent, we should not ignore the fact that other factors are also affecting
the manufacturing sector. Some emerging economies (including China) are rebalancing away from
exportorientated manufacturing towards domestically-orientated services sectors. In addition, following an
exceptionally strong performance in 2017, the global technology sector has started to cool (Chart 3).[2]
Several key Asian economies specialise in tech production, with Asian tech exports accounting for 10
percent of global trade. These economies are closely linked to one another through integrated supply
chains, such that the slowdown in tech production has affected economic activity in a number of countries.
Chart 3
The global tech cycle
(left-hand scale: diffusion index; right-hand scale: annual percentage changes)
Sources: Tirpák, M. (2019), Markit, Thomson Financial Datastream, FRED, KITA and ECB calculations. Latest update:
August 2019 (PMI, Philadelphia Semiconductor Index and US Tech Pulse Index) and July 2019 (Korean semiconductor
exports).
Turning to the euro area, real GDP growth slowed from 0.4 percent, quarter on quarter, in the first quarter
of this year, to 0.2 percent in the second quarter. This slowdown was due to a contraction of net exports,
reflecting the weakness in the external environment, while domestic demand remained resilient.
Consumption is robust and households continue to signal optimism about their future financial situation
(Chart 4). We expect positive consumption dynamics to continue to be supported by easy financing
conditions, improving household balance sheets, higher disposable income on the back of fiscal stimulus,
further - albeit slowing - employment gains, and rising labour income.
Chart 4
Retail trade and consumer confidence
(left-hand scale: year-on-year percentage changes of three-month average; right-hand scale: net percentages)
Sources: Eurostat, DG-ECFIN and ECB staff calculations.Latest observations: July 2019 for retail trade and August 2019
for consumer confidence.
The strength of employment growth has been a central feature of the euro area recovery in recent years
and, so far, the labour market has been relatively resilient to the current slowdown. Employment is still
increasing: the number of people employed has risen by 11.2 million since the employment trough in
mid2013. The unemployment rate stands at 7.5 percent, its lowest level since July 2008.
Despite some moderation, surveys such as the purchasing managers' index (PMI) continue to signal
positive overall employment growth in the third quarter. For the construction and services sectors, the PMI
employment indices remain above their long-run averages, pointing to labour market resilience in sectors
less exposed to trade tensions. However, in the more externally-oriented manufacturing sector,
employment indicators have been in contractionary territory for four months, illustrating that the euro area
labour market is not immune to global developments (Chart 5).
Chart 5
PMI indicator of employment in the euro area
(index level)
Source: Markit.Latest observations in Q2 2019: sector-specific averages of the values in July and August.
The continued threat of protectionism and other geopolitical risks, such as the possibility of a disorderly
Brexit, are clearly weighing on confidence. Business investment has been slowing down since early 2018
and was relatively subdued in the first half of this year. The negative effects of persistent uncertainties on
the euro area economy are especially evident in the manufacturing sector, which is most exposed to trade
developments.
Let me elaborate on the contrast between developments in the manufacturing and services sectors, which
is evident in activity, confidence, employment and price data. The manufacturing sector has been
underperforming the more domestically oriented services sector since 2018 (Chart 6). The PMI
manufacturing output index has been in contractionary territory for seven consecutive months, decreasing
to 47.4 in the first two months of the third quarter, compared with an average of 48.5 in the second quarter.
By contrast, the services PMI remains in expansionary territory and has edged higher, on average, in the
third quarter to date, when compared with the previous quarter. So the gap between weak manufacturing
and resilient services activity has further widened.
Chart 6
Euro area PMI indices
(diffusion index; 50 = no change)
Source: Markit.Latest observation: August 2019.
While the services sector contributes over 70 percent of total value added in the euro area, the extended
weakness in manufacturing is weighing considerably on overall activity levels. In addition to its adverse
impact at the aggregate level, the slowdown in manufacturing has an asymmetric effect across member
countries and different sectors. For example, while Germany accounts for 28 percent of euro area GDP, its
contribution to euro area manufacturing value added stands at 39 percent. By contrast, France represents
21 percent of euro area GDP but only 13 percent of manufacturing.[3]
Comparing national business climate indicators shows a relatively pronounced deterioration of sentiment in
Germany, where the Ifo index for manufacturing has fallen to its lowest level since December 2009 (Chart
7).
Chart 7
National manufacturing business climate indicators
(difference from long-term average; normalised)
Sources: Ifo, Insee and Istat.Latest observation: August 2019.
Although the euro area services sector remains resilient, there is no room for complacency: the longer the
weakness in manufacturing persists, the greater the risk of adverse spillovers to other sectors of the
economy. In Germany, for example, service providers reported in August noticeably less optimistic
expectations for the near future, and have become more pessimistic in their assessment of the current
business situation. Possible knock-on effects from anaemic industrial activity to other sectors of the
economy therefore need to be closely monitored.
As a result of continued global uncertainties and their impact on confidence, the short-term growth outlook
has been revised down in the latest ECB staff macroeconomic projections. Real GDP growth is now
projected to be 1.1 percent in 2019, 1.2 percent in 2020 and 1.4 percent in 2021. Compared with the June
Eurosystem staff projections, growth for this year was revised down by 0.1 percentage points, and for next
year by 0.2 percentage points. Notwithstanding the downward revisions to the growth outlook, the balance
of risks remains tilted to the downside. Furthermore, I would characterise the distribution of risks as
bimodal. In one scenario, global trade tensions and Brexit could be resolved positively, while in another
scenario, trade-related uncertainty could linger and risks associated with a disorderly Brexit could
materialise.
Chart 8
HICP and HICP excluding food and energy
(percentages per annum)
Sources: Eurostat and ECB calculations.Notes: HICP stands for harmonised index of consumer prices. Based on monthly
observations.Latest observation: August 2019 (flash estimate).
Turning to nominal developments, inflation continues to fall short of expectations (Chart 8). Headline
inflation remains well below our inflation aim, while core inflation has been hovering around 1 percent for
an extended period of time. At one level, the reduction in labour market slack is translating into higher
compensation per employee (Chart 9)[4]
. However, the pass-through of higher wages to domestic price pressures remains muted, it follows that
firms are absorbing higher unit labour costs through lower profit margins (Chart 10).
While the reasons for this limited pass-through have yet to be fully explained, a contributing factor is the
weakness in the manufacturing sector, as reflected by weaker supply chain price pressures compared with
the services sector. The European Commission's indicators of three-months-ahead selling price
expectations show that they have deteriorated in the manufacturing sector but have held up well in the
services sector (Chart 11).
Phillips Curve-based decomposition of wage growth into its main drivers
(deviations from mean in year-on-year growth terms and percentage point contributions)
Source: Nickel, C. et al. (eds.) (2019) "Understanding low wage growth in the euro area and European countries",
Occasional Paper Series, No 232, ECB.Notes: Sample from Q1 1995 to Q4 2018. The blue line shows deviations of
compensation per employee growth from its model-implied mean. Contributions (including residuals) are also shown as
deviations from their model-implied mean. Contributions are derived as in Yellen, J.L. (2015). "Inflation Dynamics and
Monetary Policy", speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst.Latest
observation: Q4 2018.
Chart 10
GDP deflator and contributions
(annual percentage changes, percentage points)
Sources: Eurostat, ECB staff calculations.Latest observation : Q2 2019.
Share of countries with short-term selling price expectations below long-term mean
(percentages)
Sources: European Commission and ECB staff calculations. Notes: Selling price expectations in manufacturing for three
months ahead based on a European Commission indicator available since 1999 for all euro area countries (except
Luxembourg). The series are shown as two-month moving averages.Latest observation: August 2019.
Meanwhile, market-based indicators of future inflation outcomes have stagnated at historical lows. For
instance, although the likelihood of deflation remains limited, the market assessment of the probability of
low inflation over the next five years, as derived from options prices, has increased substantially since the
turn of the year (Chart 12).
Chart 12
Option-implied distribution of average inflation over the next five years
(percentages)
https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190916~ca7...16.09.2019
Sources: Bloomberg, Thomson Reuters and ECB staff calculations.Notes: Probabilities implied by five-year zero-coupon
inflation options, smoothed over five business days. Risk-neutral probabilities may differ significantly from physical, or
true, probabilities.Latest observation: 12 September 2019.
The ECB staff projections published last week now point to headline inflation of 1.2 percent in 2019, 1.0
percent in 2020 and 1.5 percent in 2021. Compared with the June projections, the profile for headline
inflation has been revised down by 0.1 percentage points in 2019 and 2021, and by 0.4 percentage points
in 2020. Although the downward revisions to headline inflation are partly due to the volatile energy
component, projections for HICP inflation excluding food and energy have also been revised down on
account of weaker data outturns, softer activity, indirect effects from lower energy prices and persistent
past over-predictions.
Last week's policy meeting also took place against the background of a pronounced fall in risk-free rates
that we have been observing since the start of the year. In part, this is a global pattern, with US long-term
yields also declining (Chart 13). This suggests that there is a substantial shared component in the decline
in long-term rates that reflects a significant weight being attached to sub-par long-term outcomes for
growth and inflation across advanced economies.
Chart 13
Ten-year yields of German and US government bonds
(percentages)
https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190916~ca7...16.09.2019
Sources: Bloomberg and ECB.Latest observation: 10 September 2019.
The downward revision in long-term yields incorporates the market's assessment that central banks will
respond (both in the near term and the long term) to adverse developments in the inflation outlook by
lowering policy rates and further contributing to the easing of financial conditions through the compression
of term premia (Chart 14). While the lower rates that we have observed have contributed to an overall
loosening of financial conditions since the start of the year, it is important to keep in mind that long-term
rates that are declining due to a deterioration of the economic outlook, an adverse shift in the risk
distribution or revised calculations of the equilibrium real interest rate offer only limited easing potential,
especially if they are not backed up by active use of the policy toolkit.[5]
Chart 14
Realised EONIA and forward curve
(percentages per annum)
Source: ECB.
Monetary policy
At our meeting last week, the Governing Council was hence confronted with a more extended slowdown of
the euro area economy than previously anticipated, persistent and salient downside risks to the growth
outlook, and a further delay in the convergence of inflation towards our medium-term inflation aim (Chart
15). The case for a monetary policy response was clear, and a comprehensive package of measures was
judged to be the most effective way to support the convergence of inflation to our aim.[6]
Chart 15
Actual and projected HICP inflation
(year-on-year percentage change)
Source: ECB and Eurosystem staff macroeconomic projections.
The policy response to the continued shortfall of inflation from our aim also reflects our commitment to
symmetry in the inflation aim, which we emphasised in the statement following the Governing Council's
July meeting. This was essentially a clarification of our reaction function: our determination to act when
inflation falls short of our medium-term inflation aim is just as strong as our determination to act when
inflation exceeds that aim. Stating clearly our commitment to symmetry is important, since the formulation
of our aim - "below, but close to, 2 percent" - risks being misunderstood, particularly in an environment of
falling inflation expectations. We also stressed in July that both realised and projected inflation have been
persistently below levels that are in line with our aim. This was also an important facet of our
communication because the "close to" formulation of our inflation aim does not provide a precise numeric
anchor for inflation expectations.
In line with our commitment to symmetry, the downward revisions to the projected inflation path warranted
a vigorous policy response. We therefore announced a broad-based set of measures designed to
complement each other in providing monetary stimulus. Our measures will lock in financial conditions
across various segments of the market that are sufficiently supportive to foster a reacceleration of growth
and the anchoring of inflation expectations. Favourable financing conditions will pass through to the
borrowing costs of businesses and households, which will sustain investment and consumption. Greater
business and household expenditure, in turn, is one key condition for inflation to converge to our aim. In
addition, our policies create a cushion to insulate the economy from the materialisation of downside risks
by reducing uncertainty about future financing conditions and underpinning confidence.
Let me first outline our adjustments to the instruments that primarily affect the expected path of short-term
interest rates and thereby the expectations component of long-term interest rates: the level of the key
policy rates and forward guidance on the expected path of these rates.
We decided to lower the interest rate on the deposit facility by 10 basis points to -0.5 percent. In the
context of ample excess liquidity, the deposit facility rate is the anchor for the EONIA market interest rate -
which is the starting point of the monetary policy transmission mechanism. The EONIA anchors the
overnight indexed swap curve in the euro area, which in turn underlies the pricing of many financial
instruments and, in particular, underpins the reference rates that are important for loan rate fixation.
Lowering the deposit facility rate therefore affects the entire term structure of interest rates and, ultimately,
the funding costs that matter for businesses and households. Negative rates have supported the portfolio
rebalancing channel of the asset purchase programme (APP) by encouraging banks to lend to the broad
economy instead of holding onto liquidity.[7]
The impact of the cut in the deposit facility rate on the term structure of interest rates is reinforced by our
forward guidance, which now strengthens the conditionality criteria for interest rate normalisation.
We strengthened our state-contingent forward guidance in a number of ways. These enhancements
complement our emphasis on symmetry by clarifying our reaction function with respect to developments in
the inflation outlook: the strengthened guidance provides a clear signpost for rate expectations by linking
our policy to more stringent conditions for the inflation outlook. Specifically, the guidance now gives a
clearer indication of what we want to see before policy interest rates start to normalise. As communicated
last week, we expect to keep the key ECB interest rates at present or lower levels until we have seen the
inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent within our projection
horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
This formulation provides a conditionality framework with a number of elements. First, we want to see
inflation rising to a level that is sufficiently close to, but below, 2 percent. This reflects our communication
in July: realised and projected inflation are too low relative to our aim. Second, we have preserved the
forward-looking formulation of our forward guidance, since the guidance has a medium-term orientation.
This reflects the general principle that monetary policy takes time to display its full effects and thus should
be forward-looking. Third, we have added two safeguards to anchor the notion of sustainability, which has
always been part of our guidance but is now more clearly stated. The phrase "robustly converge" means
that the Governing Council wants to be sure that the process of convergence is sufficiently mature and
realistic before starting to lift policy rates. The qualification that convergence needs to be "consistently
reflected in underlying inflation dynamics" means that the trajectory of realised inflation should underpin
our inflation outlook.
State-contingent forward guidance is especially effective under conditions of elevated uncertainty since it
facilitates a smooth adjustment to the evolution of macroeconomic and financial conditions in both
directions: expectations about the future policy path will respond in a stabilising manner to the emergence
of positive or negative news.
We also retained the so-called easing bias by stating our expectation to keep the key ECB interest rates
"at present or lower" levels. We judge that, if needed, we can further lower the deposit facility rate and, with
it, the overnight money market rate. As a result, there is no reason for the distribution of future short-term
rate expectations to be skewed upwards.[8]
Finally, we dropped the date-based leg of our forward guidance since the strengthened state-contingent
information, which links our policy more tightly to the inflation outlook, provides sufficient guidance to
markets on the future path of monetary policy.
We also decided to restart net asset purchases at a monthly pace of €20 billion as from the beginning of
November. Our purchases are expected to run for as long as necessary to reinforce the accommodative
impact of our policy rates, and to end shortly before we start raising the key ECB interest rates. In addition,
we reiterated our intention to continue reinvesting, in full, maturing principals for an extended period of time
past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to
maintain favourable liquidity conditions and an ample degree of monetary accommodation. Renewed net
asset purchases and the revised forward guidance on policy rates also imply an expansion of the
reinvestment envelope and the automatic response of the reinvestment horizon to the evolution of the
inflation outlook. Finally, based on our projections on the size and evolution of the purchasable universe,
we are confident that the envisaged purchase volumes will be consistent with the current parameters of the
APP for an extended period of time.
Additional net asset purchases and, by implication, the revised reinvestment horizon reinforce the
accommodative impact of our policy rates in several ways. First, by affecting term premia, net purchases
and reinvestment complement the downward impact on long-term interest rates exerted by our policy rate
forward guidance. The APP therefore provides further support to the funding costs that matter for
businesses and households. Second, asset purchases entail a signalling channel by demonstrating our
commitment to use all instruments in pursuit of our aim. This not only influences the expected path of
short-term policy rates, and thereby long-term interest rates, it can also have a powerful effect on the
formation of inflation expectations. Third, the APP entails wealth effects on the balance sheets of banks
and other entities, providing further impetus to investment and consumption.
Fourth, new net purchases and a prolonged reinvestment horizon mitigate the passive tightening in the
monetary policy stance that happens mechanically as the APP portfolio ages. One of the channels through
which asset purchases work is the duration channel. By absorbing duration risk from the market, the APP
reduces the risk compensation required by investors, which puts downward pressure on term premia and
yields. As the bonds we hold in our portfolio come closer to maturing, however, the overall amount of
duration risk that is tied up in our portfolio progressively falls. As a result, the downward impact on risk
premia - and thereby on long-term interest rates - resulting from the duration channel weakens over time.
Adding to the stock of asset purchases - both directly and through the reinvestment channel - will keep
this portfolio ageing effect at bay (Chart 16).[9]
Chart 16
Estimated effect of APP recalibration vintages on euro area ten-year term premium
(basis points)
Source: Based on Eser, F., Lemke, W., Nyholm, K., Radde, S. and Vladu, A.L. (2019), "Tracing the impact of the ECB's
asset purchase programme on the yield curve", Working Paper Series, No 2293, ECB.Notes: The chart shows the impact
of the APP through the duration channel on the term premium component of the ten-year sovereign bond yield (averaged
across the four largest euro area countries) over the events cited in the chart legend. The reinvestment horizon is
assumed to be five years starting in the month after the announced end of net purchases at each point in time. The chart
does not account for the new asset purchases announced in September 2019.
To ensure the continued smooth transmission of our monetary policy stance, we decided to adjust the
parameters of the new series of targeted longer-term refinancing operations (TLTRO III) and announce a
two-tier system for reserve remuneration. Both measures serve to mitigate the risk of possible side effects
of the ECB's accommodative monetary policy stance on bank-based intermediation undermining the
sustained convergence of inflation.
With respect to the TLTROs, we eliminated the 10 basis point spread over the key policy rates entailed in
the initial pricing of the operations. The interest rate in each operation will now be set at the level of the
average rate applied in the main refinancing operations over the life of the respective TLTRO. For banks
whose eligible net lending exceeds a benchmark, the rate applied in the TLTRO III operation will be lower,
and can be as low as the average interest rate on the deposit facility prevailing over the life of the
operation. In addition, the maturity of the operations will be extended from two to three years.
These changes will not only ensure the smooth transmission of monetary policy, they will also preserve
favourable bank lending conditions and support the accommodative stance of monetary policy. In
particular, extending the maturity from two to three years will better align the operations with the typical
maturity of bank-based financing of investment projects, thereby enhancing the support that TLTRO III
provides to the financing of the real economy. The adjustments to the TLTRO III parameters signal that the
Governing Council can act in an agile manner and fine-tune its monetary policy instruments, as needed, to
ensure that they are efficient, effective and proportionate to the risks to price stability.
Complementing the TLTRO III operations, the two-tier system for reserve remuneration - which will take
effect on 30 October 2019 - supports the bank-based transmission mechanism, as it will mitigate the
adverse side effects of negative interest rates on banks. This system has been calibrated to strike a
balance between, on the one hand, offsetting the direct cost of negative interest rates on bank profitability,
thereby helping to sustain the pass-through of low policy rates to bank lending rates, and on the other,
preserving the positive contribution of negative rates to the accommodative stance of monetary policy and
the continued sustained convergence of inflation to our aim.
Reconciling these two goals is possible, since the value of funds in the money market is determined by
their cost at the margin. That marginal cost will continue to be set by the rate on our deposit facility, and it
will not be influenced by the higher remuneration that banks will receive on the portion of their reserves
that will be exempt under the new scheme. The excess liquidity that will be created in exchange for the
additional bond purchases that start in November will also further increase the non-exempt amount, which
has already been calibrated in such a way as to preserve a high level of trading activity in the money
market. In any case, we will actively monitor conditions in the money market and adjust parameters as
necessary to maintain an active trading environment and to ensure that the easing effects of a reduction in
the overnight interest rate are transmitted effectively through the entire yield curve.
To sum up, the measures we announced last week complement each other and together constitute a
powerful package. As I previously noted, the evidence shows that our monetary policy measures have
been an effective response to the environment that the ECB has faced in recent years.[10]
The cut in the deposit facility rate lowers the anchor for the entire term structure of interest rates, while the
forward guidance on interest rates steers expectations of the short-term interest rate path. The forward
guidance protects the short to medium-term segment of the yield curve from unnecessary volatility by
eliminating residual uncertainty about the expected rate path over the forward guidance horizon. In
addition, it helps to steer the long end of the yield curve by affecting the expectations component of
longterm interest rates.
Renewed net asset purchases reinforce the downward pressure on long-term rates by reducing risk
premia, and also complement the impact of forward guidance on the expected short-term rate path by
signalling the Governing Council's commitment to maintain a highly accommodative monetary policy
stance for a prolonged period of time. New net asset purchases will also mitigate the mechanical upward
pressure on long-term rates that ensues from the gradual ageing of our portfolio and the associated loss of
duration. Both the net asset purchase horizon and the reinvestment horizon are linked to our interest rates.
They will therefore adjust dynamically to changes in the inflation outlook and work in the background to
keep a lid on medium to long-term interest rates. Meanwhile, the changes in the TLTRO III parameters and
the two-tier system for reserve remuneration will ensure that lower market interest rates are effectively
passed through to the interest rates banks charge their customers.
Concluding remarks
The convergence of inflation towards the Governing Council's aim has recently slowed and partly
reversed. The comprehensive package of measures decided last week will help to support the
convergence of inflation to levels that are below, but close to, 2 percent in a sustained manner. Our policy
decisions will affect inflation by supporting favourable financing conditions, and thereby growth, as well as
by underpinning inflation expectations. It is clear that a highly accommodative stance of monetary policy
will be necessary for a prolonged period of time. Forward guidance on the key ECB policy rates is a very
powerful instrument and remains our principal tool, together with the level of our key policy rates, for
adjusting the monetary policy stance. The asset purchase programme is an important complement to our
interest rate policy and will dynamically adjust in line with our policy rate forward guidance.
Backed by our assessment of the empirical evidence, we are confident that our monetary policy measures
remain effective in fostering a reacceleration of growth and, thereby, inflation convergence, and we are
determined to adjust all of our instruments, as appropriate, to ensure that inflation converges durably to our
aim, in line with our commitment to symmetry. The ECB's mandate for price stability is unconditional, and
the Governing Council is unwavering in its commitment to achieve its inflation aim.
Finally, as I have outlined today, our monetary policy decisions are driven by our assessment of the
macroeconomic and financial environment. As noted in last week's introductory statement, other policy
pillars play a critical role in determining the long-term and short-term prospects for the euro area economy.
Growth-enhancing institutional and structural reforms and a more growth-friendly compositi