Thereafter, supported by our substantial monetary stimulus and the projected evolution of energy prices and economic developments more generally, euro area inflation rates should recover further. In the current context, it is crucial for the ECB to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price-setting. Our monetary policy continues to aim at safeguarding price stability in fulfilment of our mandate. While the monetary policy measures taken since June 2014 have helped supporting the euro area’s economic recovery and fighting too low inflation, new shocks that emerged during the course of last year prompted a measurable downgrade of the inflation outlook. Hence, in March 2016 the ECB’s Governing Council decided on a comprehensive package of measures that complement and reinforce each other and thereby strengthen the monetary policy impulse. The package combines a further broad-based easing of financial conditions through a further reduction in the ECB’s key policy rates and the expansion of our asset purchase programme, with other measures, notably four new targeted longer-term refinancing operations (TLTRO II) that will reinforce the transmission of our monetary policy  BIS central bankers’ speeches  1  stance to the borrowing conditions of firms and households. The TLTRO II operations will enable banks to borrow liquidity for a period of four years at a rate that can be as low as the rate on the deposit facility – currently –0.40% – in case these banks increase their lending beyond a certain benchmark.

These fundamentally conflicting objectives provoked many currency crises and caused tremendous economic harm and, as a result, heightened people’s desire for monetary stability. Today, the public’s aversion to, and politicians’ awareness of, inflation may have reached a peak in the developed world. This was certainly a necessary condition for the global disinflation process of the 1990s. Historically, the most effective device for keeping the price level down was the gold standard.2 In the US, for example, accumulated inflation between the founding year (1776) and World War II was just 1  The majority of European central banks were established in the 19th century. The rise of central banking accelerated in the 20th century. 2  However, the long-run stability of the price level was accompanied by strong and recurring fluctuations in output and prices. 1  BIS Review 35/2000  30%, whereas since then, the price level has multiplied by factor 8. The figures for Europe look broadly similar when the war-driven hyperinflations are left out of account. This makes central banks’ seemingly unique policy performance in the nineties look slightly more modest. In the past decade, three main factors facilitated a return to purchasing power stability. First, a lesson was learned from the negative experience with inflation. Price stability gained considerably in importance in the political process. Majorities in both governments and parliaments voted in favour of monetary discipline, which in many places amounted to priority being given to budget discipline and pronounced central bank autonomy.