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ECB’s Lane: Forward guidance has been and continues to be an effective monetary policy tool

“Evidence suggests that the ECB’s rate forward guidance has been and continues to be an effective monetary policy tool,” European Central Bank’s chief economist Philip Lane said in his prepared remarks delivered at the 2020 US Monetary Policy Forum on Friday.

Key takeaways

“The governing council is closely monitoring the risk that the impact of negative rates on bank profitability may impair the transmission of monetary policy to the real economy.”

“Lower real rates reduce the available policy space to counter low inflation.”

“This may increase the time it takes for inflation to return to target and this delay may be compounded if a prolonged period of low inflation also erodes inflation expectations.”

“ECB has been willing and able to calibrate the combination of its unconventional policy instruments in directions and on a scale that gives sizeable support to the economy and continues to support the convergence of inflation to our aim.”

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