Evaluating the new phase of unconventional monetary policy
Since June 2014 the transmission of policy rates to lending rates has improved considerably, with declines in lending rates becoming more pronounced as well as more widely distributed across euro area countries.
Our quarterly bank lending survey confirms the improvements in broader credit conditions since the introduction of our new non-standard measures. [...] Easier access to credit has been coupled with a consistent increase in firms’ demand for loans. The general level of interest rates, according to the survey respondents, is contributing most to the recovery in loan demand.
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The ongoing deterioration of long-term inflation expectations was a major factor in the extension of our purchase programme in January this year. [...] Euro area longer-term inflation expectations (both market-based and, to a lesser extent, survey-based) had been falling since early 2013, reaching an all-time low by early 2015.
Expectations of inflation five years ahead, as expressed in the ECB Survey of Professional Forecasters, fell from 1.98% in the first quarter of 2013 to 1.77% in the first quarter of 2015. The five-year inflation-linked swap rate five years ahead fell from 2.4% to 1.5% over the same period. Since January 2015 this declining trend has been reversed. Both market-based and survey-based measures of longer-term inflation expectations have recovered from their lows. [...]
I will now turn briefly to macro developments, both in terms of inflation and economic growth.
Since last April headline inflation has turned positive but remains very low, affected by the renewed decline in oil prices. [...]
Financial stability risks, stemming from search for yield and higher leverage, are real, but monetary policy cannot be inhibited in the pursuit of its priority goals. [...]
Regarding the risks associated with the search for yield and rich asset valuations, it is important to highlight that there are currently no signs of a general situation of asset overvaluation in the euro area. [...]
[...]the ECB could decide to use its own powers to trigger a tightening of macroprudential tools and to exert its coordinating role in relation to possible spillovers of the measures taken in particular countries. [...]
Conclusions
Our new non-standard measures have successfully improved financial and credit conditions in the euro area and contributed to supporting the normalisation of price stability, as well as the ongoing economic recovery. I am confident that full implementation of the private and public sector asset purchase programmes, as announced, will lead to a sustained return of inflation rates towards levels consistent with our definition of price stability, underpinning the firm anchoring of medium to long-term inflation expectations. As always, the Governing Council stands ready to use all the instruments available within its mandate to respond to any material change to the outlook for price stability.
Full speech
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