rise in the general price level ( for both goods and services ). by tightening monetary policy, the aim is to avoid the development of an upward spiral in consumer prices and wages. such a wage - price spiral would be a sign that inflation expectations have become de - anchored. 2 / 8 bis - central bankers'speeches if expectations are no longer anchored, then achievement of the inflation target over the medium term will be at greater cost to the real economy, because it would lead to tighter monetary policy and slower growth in the economy. [ slide 8. confidence in monetary policy retained – inflation expectations still at around 2 % ] the central bank's task is to ensure that inflation expectations remain anchored to the targeted level. there are several different indicators used for measuring inflation expectations. the accompanying chart makes use of the ecb survey of professional forecasters and market - based expectations derived from inflation swaps. these indicate that inflation expectations have risen somewhat but are still at around 2 %. confidence in the ecb's monetary policy has therefore remained intact. [ slide 9. ecb's governing council has raised key interest rates to stabilise inflation at 2 % over the medium term ] the governing council of the ecb has raised key interest rates in order to stabilise inflation at its 2 % target over the medium term. the key interest rates were raised by half a percentage point in july and by a further 0. 75 percentage points in september and october. before starting to raise interest rates in july, the ecb's most important policy rate was negative, at - 0. 5 %. this deposit facility rate is currently 1. 5 %. key ecb interest rates are likely to be raised still further. the pace at which this is done will depend on how the economy develops and what the inflation data looks like. by tightening monetary policy, the aim is to stabilise inflation at its 2 % target over the medium term. [ slide 10. warding off stagflation : very low unemployment rate in euro area – businesses concerned about availability of labour ] stagflation refers to a situation in which there is high inflation, weak growth in the economy and elevated unemployment all at the same time. stagflation is often associated with the 1970s, when a powerful surge in costs due to energy supply shocks fed through to wages, which further stoked inflation. higher costs then impeded output growth, and the contraction in real incomes dampened private consumption, which in

olli rehn : rethinking the ecb ’ s strategy in the world of low rates speech by mr olli rehn, governor of the bank of finland, at the bank of finland webinar “ new challenges to monetary policy strategies ”, 24 november 2020. * * * check against delivery ladies and gentlemen, dear friends, it is a great pleasure for me to welcome you all to the bank of finland webinar on new challenges to monetary policy strategies. we are streaming the event from our monetary museum in helsinki. i would like to extend a special welcome to a large group of invited guests in teams. i look forward to a productive debate this afternoon. in my opening remarks, i ’ d like to briefly lay the ground for the two main subjects of the webinar. firstly, as this webinar will focus on the core analytical matters in the european central bank ’ s ongoing strategy review, i will say a few words on its background and key issues. secondly, i will discuss new challenges raised by the covid - 19 pandemic, particularly the interaction between monetary and fiscal policy, which has become an increasingly strategic issue in the context of the current crisis. primary objectives of the ecb the essential rationale of the review was elegantly coined by president christine lagarde recently : “ we need to thoroughly analyse the forces that are driving inflation dynamics today, and consider whether and how we should adjust our policy strategy in response. ” 1 with that in mind, and to set the scene, let me explore what has been the evolutionary road of the ecb ’ s monetary policy strategy during its relatively short history. as the european union is fundamentally a community of law, it is worth reminding ourselves of the legal base of monetary policy : the eu treaty defines price stability as the primary objective of the eurosystem. 2 clear enough, but how has price stability been defined so far? that is perhaps less clear. in october 1998, the governing council announced a quantitative definition of price stability, which was defined as “ a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ”. that was interpreted as a range between 0 and 2 %, and the main focus was on combating too high inflation. after reasonable success in achieving that aim, the first review of the strategy was launched half a decade later in 2003. the project was aimed at promoting public understanding of the