This ensures a high degree of likelihood that future price developments will be consistent with the definition of price stability. The Governing Council bases its monetary policy discussions on the information revealed by the two pillars of its strategy. The first pillar is a prominent role for money, implying that monetary and credit developments are thoroughly analysed for their information content with regard to future price developments and risks to price stability. The prominent role for money is signalled by the announcement of a quantitative reference value for monetary growth in terms of M3. I like to emphasise again that the M3 reference  1  BIS Review 128/1999  value is not a monetary target. Monetary policy will not react mechanistically to deviations of M3 growth from the reference value. The second pillar is a broadly based assessment of the outlook for price developments. This comprises analysis of many individual non-monetary indicators. We also look at macroeconomic forecasts prepared both externally and internally. I know that some analysts in the market would prefer if the Eurosystem had a very simple strategy, where interest rates are changed quasi-automatically in response to a few (or even a single) observable variable(s). Some would prefer monetary targeting, others favour inflation targeting. I acknowledge that our strategy is complex. However, we have to recognise that we live in a rather complex economic world and that there are additional uncertainties related to the changeover to the new regime of Monetary Union in the euro area.

At the heart of the answer to this question is the Eurosystem’s monetary policy strategy. Indeed, this strategy is designed to make both our objective and the monetary policy aimed at achieving this objective credible, transparent and comprehensible, and thus make our decisions predictable. However, let me be very clear. Being predictable in no way implies that the central bank intends to follow the market. On the contrary, the causality should run in the other direction. Markets should be in a position to anticipate monetary policy decisions based on a credible strategy of the central bank. This does not exclude that certain monetary policy decisions may sometimes surprise the markets, but this is not our aim. As was argued in an article in the most recent issue of the ECB Monthly Bulletin, a stability-oriented monetary policy contributes to reducing certain risk premia in interest rates and thereby to increasing the efficiency of the allocation of capital, thus enhancing overall welfare. This shows that it is very important to give clear guidance to the markets by conducting a credible monetary policy focused on price stability. As you know, the strategy selected by the Governing Council of the ECB comprises a quantitative definition of price stability, which should contribute to anchoring long-term inflation expectations, as well as the two so-called pillars. The quantification of the primary objective, combined with the transparency and the credibility of the Eurosystem, provides the most important guidance to financial markets. Our monetary policy should contribute to keeping inflation expectations safely below 2%.