ECB governing council member and Belgian CB head 21 March

  • monetary policy needs to remain patient, persistent and prudent
  • over the past decade, the ECB, like other central banks, has taken unprecedented measures to limit the impact of the financial crisis on the economy of the euro area
  • since 2014, euro area inflation has averaged 0.6% in annual terms. Currently, both headline and underlying inflation remain well below 2%. Looking ahead, we expect a slow recovery of inflation towards our inflation aim.

The speech is entitled " The impact of monetary policy on the macroeconomy and European banks". It was given yesterday but published today.

Nothing in it to shake FX prices up but cautionary words mostly nonetheless

EURUSD still trawling 1.2280 after 1.2291 session highs with option -related interest at 1.2300 helping to cap.

He concludes:

Even when we deliver on our mandate and bring inflation back towards 2%, the real component in nominal interest rates might not recover to pre-crisis levels. Beyond cyclical factors, the low level of real rates is also due to structural drivers, such as demographic developments or slower potential growth. These factors are beyond the reach of monetary policy. That might mean that interest rates could settle at lower levels than before the crisis, and that episodes of very low rates - for instance during recessions - may become more frequent. That makes my previous recommendation even more important. In order to increase real returns again, other policymakers should do their job by pursuing structural reforms to boost economic growth.

Finally, while the current period of low rates can put pressure on banks' profits, other, more structural factors, may also play a role. Banks, especially in Europe, are still facing a number of considerable challenges going forward, which will remain after the 'normalisation' of monetary policy. These challenges include still elevated cost structures, the emergence and growing role of Fintech competitors, IT and cybersecurity risks, and evidence of overcapacity in the European banking sector, to name but a few examples. To continue playing their important role in our economy, banks must still continue to adapt to the new environment.

Full speech here