Yves Mersch: Reflections on monetary policy in the euro area
Speaking points by Mr Yves Mersch, Member of the Executive Board of the European Central
Bank, at the Eurofi conference, Sofia, 27 April 2018.
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While the recent flow of data points towards some moderation in the on-going economic
expansion, growth is still expected to remain solid and broad based.
Monetary policy measures introduced since 2014 have been instrumental in supporting euro
area growth and employment.
Underlying inflation continues to be subdued and have yet to show convincing signs of a
sustained upward trend. At the same time, wages continue to edge higher and should
contribute to price pressures.
Overall, the underlying strength in the euro area economy continues to support our
confidence that inflation will converge towards our aim over the medium term. Yet, inflation
convergence will likely proceed only gradually, and remains contingent on a highly
accommodative monetary policy stance.
Looking ahead, the evolution of monetary policy will be firmly guided by the outlook for price
stability. The transition towards policy normalisation will begin once the Governing Council
assesses there has been sustained adjustment in the path of inflation.
This assessment will be based on three criteria: convergence, confidence, and resilience
Convergence: looking into the medium term, headline inflation should be well on track
toward reaching levels below, but close to, 2%
Confidence: Governing Council will need to have confidence that the convergence path
is likely to materialise sustainably
Resilience: sustained adjustment in the path of inflation will be maintained even without
additional net asset purchases
There is growing confidence that these criteria will be attained, yet patience, persistence and
prudence are necessary:
Patience: as it takes time for underlying price pressures to build up
Persistence: the pick-up in inflation still needs support from the monetary policy stance
Prudence: global and domestic uncertainties counsel prudence in the adjustment of
the monetary policy parameters
Once the Governing Council decides that sustained adjustment is taking place, net asset
purchases will end in line with our forward guidance.
Thereafter, monetary support for inflation convergence will be provided by
Reinvestments continuing for an extended period of time
Policy rates remaining at present levels well past the end of our net asset purchases
The path of policy normalisation will remain conditional on the outlook for price stability.