Philip R Lane: The compass of monetary policy - favourable financing conditions

Speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at Comissão do Mercado de Valores Mobiliários, 25 February 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Over the last year, the pandemic has presented a series of challenges to central banks. In addition to the initial task of stabilising markets, the scale and duration of the shock to the world economy and the global financial system has required extensive monetary accommodation. Looking ahead, it is clear that the successful containment of the virus and the fostering of a sustainable recovery will require an extended period of favourable financing conditions for all sectors of the economy.

In my remarks today, I will set out some considerations for thinking about favourable financing conditions as the compass guiding monetary policy.

The structure of this speech is as follows. First, I will explain the logic of employing the favourability of financing conditions as the compass for monetary policy. In assessing financing conditions, it is desirable to adopt a holistic approach, based on a multi-faceted set of indicators for both bank-based and market-based financing conditions. Accordingly, in the following sections, I next turn to the analysis of bank-based funding conditions, which is followed by the analysis of market-based financing conditions. In the final part of the speech, I summarise the overall theme of this speech and place the current pandemic challenge in the context of the overall campaign to deliver our inflation aim in the medium term.