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Inflation Expectations in the Euro Area No Longer Firmly Anchored - Monetary Policy Responses of the ECB

Press Release of September 10, 2014

Although the European Central Bank (ECB) has been pursuing an expansionary monetary policy course for many years, inflation in the euro area remains extremely weak. Furthermore, as the present Wochenbericht clearly demonstrates, the inflation expectations in the euro area are no longer firmly anchored. Expectations are becoming increasingly decoupled from the ECB's inflation target which, in turn, augments the risk of the euro area sliding into deflation. In June, the Central Bank introduced negative interest rates on the deposit facility and also announced new targeted refinancing operations (TLTROs) with fixed interest to improve the credit situation in the European crisis countries. In September, the Governing Council of the ECB reduced its key interest rates again and announced two new programs for bond purchases due to start in October. However, the success of these measures is by no means guaranteed. The ECB's expansionary monetary policy urgently needs to be supported by economic policy in order to create a dynamic economic environment in Europe and to stimulate investment.
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