At its most idealised, Magna Carta makes clear that power derives from the people and constrains the authority of the state. The state can in turn devolve power – to regions – and to independent bodies. But these bodies can never forget from where their power came or to whom they are responsible. Their authority is constrained to that necessary to pursue specific objectives and they are accountable to the people for their performance. 3. Monetary policy outlook  The Bank’s current Monetary Policy framework embodies these principles. It wasn’t always the case. The Bank of England was brought into public ownership in 1946. As former Governor Eddie George remarked, for the half century that followed “the Bank operated under legislation which, remarkably, did not attempt to define our objectives or functions.” They were, instead, “assumed to carry over from [the Bank’s] earlier long history.” 20 In that regard, the Bank’s “constitution” resembled that of the United Kingdom more broadly, comprising a rich history of law, principle and convention. All changed with the passing of the Bank of England Act in 1998, which made specific “provision about the constitution, regulation, financial arrangements and functions of the Bank.” The Act brought great clarity to the Bank’s responsibilities and granted independence to the Bank for the operation of monetary policy. In delegating authority to an independent body in this way, the Act ensured the Bank would operate under what Mervyn King described as “constrained” rather than “unfettered” discretion.

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%.