Remarks by Isabel Schnabel, Member of the Executive Board of the ECB, at an online seminar hosted by the Florence School of Banking & Finance
Frankfurt am Main, 10 June 2020
Over the past few weeks, hopes for a short duration of the COVID-19 pandemic and a quick rebound in economic activity have started to fade. Evidence is increasingly pointing towards a protracted impact of the crisis on both demand and supply conditions in the euro area and beyond.
For central banks, this implies a shift in focus from economic “firefighting” – ensuring orderly market functioning and a sufficient provision of liquidity – to dealing with the implications of the crisis on medium-term inflation. My remarks today will focus on these implications.
Based on our most recent Eurosystem staff projections, I will first discuss the risk of COVID-19 leaving a deep footprint on growth and inflation in the euro area. Against this background, I will then describe how we designed and calibrated our policy response, and explain why the pandemic emergency purchase programme (PEPP) remains the appropriate tool to address the current challenges of the crisis in the context of our price stability mandate. (...)
Conclusion
Let me conclude.
COVID-19 constitutes an unprecedented shock to the global and euro area economy. By how much the crisis will permanently shift economic structures, both within and across countries, remains highly uncertain at the current juncture. But the nature and severity of the shock make it likely that these shifts will be significant.
In this uncertain environment, monetary policy needs to play a proactive stabilising role. It needs to restore and preserve financial conditions that are consistent with a return of inflation to levels closer to 2% over the medium term. The Governing Council’s wide-ranging decisions of last week are geared towards this aim.
They were based on the assessment that, in the current fragile market environment, the PEPP remains the best, and most effective, instrument to respond to the dual risks of a shortfall of inflation from our medium-term aim and of fragmentation in the euro area, which threatens the singleness of our monetary policy.
The PEPP’s anatomy provides the flexibility – across time, jurisdictions and market segments – that is needed to effectively counter the specific challenges that COVID-19 poses. This flexibility is a key element of PEPP and will be maintained throughout its lifetime.
Thank you. (...)
Frankfurt am Main, 10 June 2020
Over the past few weeks, hopes for a short duration of the COVID-19 pandemic and a quick rebound in economic activity have started to fade. Evidence is increasingly pointing towards a protracted impact of the crisis on both demand and supply conditions in the euro area and beyond.
For central banks, this implies a shift in focus from economic “firefighting” – ensuring orderly market functioning and a sufficient provision of liquidity – to dealing with the implications of the crisis on medium-term inflation. My remarks today will focus on these implications.
Based on our most recent Eurosystem staff projections, I will first discuss the risk of COVID-19 leaving a deep footprint on growth and inflation in the euro area. Against this background, I will then describe how we designed and calibrated our policy response, and explain why the pandemic emergency purchase programme (PEPP) remains the appropriate tool to address the current challenges of the crisis in the context of our price stability mandate. (...)
Conclusion
Let me conclude.
COVID-19 constitutes an unprecedented shock to the global and euro area economy. By how much the crisis will permanently shift economic structures, both within and across countries, remains highly uncertain at the current juncture. But the nature and severity of the shock make it likely that these shifts will be significant.
In this uncertain environment, monetary policy needs to play a proactive stabilising role. It needs to restore and preserve financial conditions that are consistent with a return of inflation to levels closer to 2% over the medium term. The Governing Council’s wide-ranging decisions of last week are geared towards this aim.
They were based on the assessment that, in the current fragile market environment, the PEPP remains the best, and most effective, instrument to respond to the dual risks of a shortfall of inflation from our medium-term aim and of fragmentation in the euro area, which threatens the singleness of our monetary policy.
The PEPP’s anatomy provides the flexibility – across time, jurisdictions and market segments – that is needed to effectively counter the specific challenges that COVID-19 poses. This flexibility is a key element of PEPP and will be maintained throughout its lifetime.
Thank you. (...)
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