Mersch explained the current economic situation and monetary policy and discussed some of the issues that have emerged from the public debate on the risks and side effects of this policy over the past year.
The European treaties give the ECB a clear mandate to maintain price stability. And the ECB has defined this task in terms of an ambitious target which has applied for over 10 years: to maintain inflation rates below, but close to, 2 per cent over the medium term.
Monetary policy takes a long time to feed through to macro-economic indicators such as inflation and growth, so the ECB has to take a forward-looking and continual approach. We believe that central bank interest rates will remain at or below current levels for a significant period, again assuming that the expected inflationary profile doesn’t change.
Against the background of low interest rates, savers are unhappy because they get very low returns on specific fixed-interest investments, and they partly blame the ECB for this. But its influence on the real returns of different types of savings is limited. Real-term interest rates and thus the real returns on savings are the result of medium- to long-term economic trends that are beyond the influence of monetary policy. "Natural" real-term interest rates reflect the economy’s long-term production potential. What this essentially means is that if the euro area is to achieve higher growth, and thus higher real returns, it needs to become more competitive again.
The Banking Union can play a valuable part in reducing the likelihood of future crises. This includes the comprehensive assessment of significant euro area banks which has just begun. Likewise, governments and businesses can help to achieve sustainable economic growth, most importantly by taking advantage of low interest rates to invest in productivity.
The creation of a Banking Union is necessary in order to repair the credit channel and improve financing conditions for companies. But this alone is not enough. Structural change is needed to reduce dependence on bank credit, particularly among small and medium-sized businesses. Three changes are needed here: a broader and deeper capital market, a revived European securitisation market, and regulatory provisions that take into account the fact that European asset-backed securities did not suffer any widespread losses.
Let me mention some of the other monetary policy options that are open to us, though I hope you will understand that no final decisions have been made:
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first, reduce the deposit facility rate below zero;
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second, carry out more longer-term refinancing operations;
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third, purchase securities directly.
Full speech
© ECB - European Central Bank
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