Since the second half of 2018, when we enhanced our forward guidance on interest rates (and especially since the monetary policy meeting of the Governing Council in March 2019), the reassessment by investors of information regarding the outlook has led them to expect a somewhat longer horizon over which rates are more likely than not to remain unchanged. Accordingly, the EONIA forward curve has shifted down substantially over recent months (see Chart 3). 5 / 19  BIS central bankers' speeches  In light of this endogenous adaptability of the state-contingent leg through investor behaviour, occasional gaps may emerge vis-à-vis the date-based leg, since the latter can only be recalibrated at each Governing Council monetary policy meeting. In March and June 2019, the Governing Council assessed that the risks to price stability warranted a recalibration of the datebased leg, thereby conveying the Governing Council’s updated assessment of the direction that the ECB’s key interest rates will have to follow. The Governing Council now expects to keep policy rates unchanged “at least through the first half of 2020”. It should be fully understood that a change to the date-based leg is not intended to ratify market views. Rather, it provides information on the Governing Council’s assessment of the rate path that, given the evolving state of the economy, we view as the likeliest to be realised. Finally, the inherent flexibility in our forward guidance framework always allows for additional enhancements to ensure that inflation remains on a sustained adjustment path.

A counterfactual exercise undertaken by ECB staff shows that growth and inflation would have been notably lower in the absence of our non-standard measures (see Chart 8 and Chart 9).12  12 / 19  BIS central bankers' speeches  13 / 19  BIS central bankers' speeches  That said, as the Governing Council has emphasised many times, in order to reap the full benefits from our monetary policy measures, it is important that other policy areas make a more decisive contribution. In particular, growth-enhancing and vulnerability-reducing measures would combine to improve confidence in the long-term potential of the euro area economy, which is a central factor in determining assessments of steady-state real interest rates. Moreover, the aggregate cyclical stance of fiscal policy plays an important role in determining the amplitude and duration of economic fluctuations. As noted by President Draghi in his Sintra speech, a cyclicallyappropriate aggregate fiscal stance may be more easily achieved through a well-designed central fiscal capacity. Let me now turn to the importance of effective communication in maintaining focus on the inflation objective, especially during phases of extended deviations. Central bank communication The Treaty on the Functioning of the European Union establishes price stability as the primary objective of the ECB. The ECB strategy makes the primary objective of price stability operational through the medium-term orientation of monetary policy. This medium-term orientation provides the necessary flexibility to combat excessive volatility in output and inflation in responding to shocks.