The reinvestment horizon is linked to the forward guidance on policy rates: we now say that we will “continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates […]”. This means that any recalibration of the date-based leg of forward guidance by construction extends the period over which investors expect the ECB to continue reinvesting in full; this prolongs the favourable liquidity conditions and reinforces the downward effect of our rate forward guidance on long-term rates by suppressing term premia (see Chart 5). 7 / 19  BIS central bankers' speeches  8 / 19  BIS central bankers' speeches  If warranted by our policy assessment, net purchases under the APP could be restarted in the future.8 In the event of any resumption of net purchases, associated revisions to the framework of forward guidance would have to be considered in order to make sure that the different instruments continue to be tightly linked and that their synergies are maximised. TLTROs The Governing Council recently decided to start a third series of TLTROs (TLTRO III) to help preserve favourable bank lending conditions and support the smooth transmission of monetary policy. The generous borrowing conditions offered to banks should not only provide a backstop to the banking system but also lower aggregate funding costs, which contributes to the overall accommodative monetary policy stance.

One piece of evidence on how expectations are formed is provided by a recent special questionnaire in the ECB’s Survey of Professional Forecasters (SPF), in which participants were asked about the factors that inform their longer-term expectations, meaning four or five years ahead.13 The responses indicated that trends in inflation emerged as a substantial driving factor, and it is fair to assume that such trends build to a very large extent on historical and thereby backward-looking data on actual inflation. However, the ECB’s inflation objective has remained the most important factor informing the longer-term expectations of SPF participants. Given that trends in actual inflation have clearly weakened in recent years, the role of the inflation objective as an anchor of expectations has been brought more strongly to the fore. One sign of this is the looser association in recent times of longer-term inflation expectations with the average of actual inflation calculated cumulatively over the history of monetary union (Chart 10). While this average ‒ and the same holds for averages taken over shorter time spans ‒ has come down over the period of low inflation, longer-term expectations have declined to a much lesser extent. This suggests that participants have not been overly extrapolative in forming their expectations about inflation. 15 / 19  BIS central bankers' speeches  Maintaining the medium-term inflation goal as the guideline for households, firms and market participants in forming expectations also requires a consistent communication strategy, especially when the near-term track record of inflation outcomes has deviated from the objective.