Monetary policy supports euro area recovery from the crisis

Abstract

The decision by the ECB Governing Council to ease monetary policy through an expanded asset purchase programme will boost demand and accelerate inflation via a number of different channels. Completion of the comprehensive assessment of banks allied to the steps taken by the ECB will improve monetary policy transmission to the real economy via bank lending. More relaxed financing conditions for non-financial corporations and the reasonable level of indebtedness in the euro area’s corporate sector provide fertile ground for recovery in investment. Households’ large debt-servicing costs and low net assets will sustain the pressures in many euro area countries for a reduction in debt levels and weaken household demand. Although the exceptionally accommodative monetary policy is justified in order to safeguard price stability, negative side-effects cannot be entirely ruled out. The channelling of the accommodative monetary policy into fixed investment rather than the housing market can be supported through macroprudential policy.