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Mr. Praet starts from a brief overview of the monetary policy toolkit that the Governing Council has adopted over the last years, and he sketches out the elements that are most relevant for the Governing Council’s deliberations about calibration of ECB’s policy measures. He then highlights the key channels by which this toolkit transmits to financial conditions. Finally, he focuses on the APP, which plays a central role among the policy instruments.
The euro area continues to experience a solid, broad-based and resilient recovery. Deflationary risks have disappeared and some measures of underlying inflation have ticked up over recent months. But overall inflation developments, despite the solid growth, have remained subdued.
Accordingly, while ECB remains confident that inflation developments will eventually return to levels below, but close to, 2% ECB’s medium-term objective, the evidence still shows insufficient progress towards a sustained adjustment in the path of inflation towards those levels. Such “sustained adjustment” is the principal contingency that has guided and will be guiding the introduction and withdrawal of ECB’s asset purchase programme (APP) and, indirectly, of all the main components of ECB’s present policy.
While the euro area recovery remains solid, broad-based and resilient, the economy has yet to make sufficient progress towards a sustained adjustment in the path of inflation to levels that are consistent with the Governing Council’s aim.
To support such sustained adjustment the ECB has resorted to a package of complementary policy measures and recalibrated this package at various occasions in line with the evolving macroeconomic conditions, most notably the outlook for price stability, and the state of monetary policy transmission.
This autumn the Governing Council will again assess how all these factors can be expected to influence the monetary policy stance and will re-calibrate its instruments accordingly, with a view to delivering the monetary policy impulse that is still necessary to secure a sustained adjustment in the path of inflation in a way that is consistent with our monetary policy aim.