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With monetary policy normalisation proceeding, the ECB has begun a review of how it will implement monetary policy in the future.

Last December, the ECB announced that it will review how it is to control interest rates in the future. The outcome of the review will also impact the size and composition of the Eurosystem’s balance sheet in the future.

In recent years, with the ECB’s asset purchase programmes and credit granted to banks, the ECB’s deposit facility rate has become the principal policy rate. The gradual reduction in the asset purchase programmes and in the volume of credit have prompted the ECB to review how it will control short-term money market interest rates in the future.

The need to rapidly reduce carbon dioxide emissions will adversely impact the operations of many companies, and may make old operations unprofitable. Loan portfolio risks can be assessed by combining company-specific information on technologies and emissions with corporate loan portfolio data.

The Government Programme establishes a foundation for strengthening the public finances and the prerequisites for sustainable growth. But unless the means for achieving growth are expanded, even a balance in the public finances will be impossible to maintain. And without sustainable public finances, the operating conditions for households and businesses operate will deteriorate.

Growth in Finland’s economy this year will be close to zero. The declining level of inflation will gradually improve household purchasing power and boost growth in the economy.

A wage-price spiral may occur in which prices and wages rise and ultimately GDP growth slows down.

For households with outstanding loans, interest payments are now taking a larger slice of their income. Savings and a strong labour market have helped households cope with the rise in the cost of living.

Companies do not appear to have sought to benefit from high inflation by increasing their prices and boosting profits.

Although the Finnish economy will not grow this year, there will be a return to growth in 2024. Employment continues to be a bright spot in the economy.

The Finnish economy will contract by 0.4% in 2023. Inflation is on its way down this year. Economic growth will pick up in 2024, albeit to a modest 0.9%. In 2025, growth in the economy will gather pace, reaching 1.5%.

Finnish households have more debt than ever before, and amid fast rising interest rates. The Finnish financial system has remained stable despite the spring turbulence in the international financial markets.

Fewer new housing loans have been taken out with interest rate hedging. Hedging products are used least by the most highly indebted.

The increase in household and investor indebtedness from housing company loans has been a concern to the authorities. Housing company loans still account for a considerable share of the financing for new homes, but new legislation will start to curb the level of debt incurred via housing company loans.

Capital buffer requirements imposed on banks are among the most important instruments available in the macroprudential policy toolkit. They protect the ability of banks to withstand losses and provide credit during severe economic and financial crises.

In Finland, it should be possible to impose a countercyclical capital buffer requirement on banks before the credit cycle overheats. This would allow the authorities, as necessary, to lower the capital requirements for banks during a crisis situation on a more flexible basis than at present.

In 2022, a backup system was put in place for safeguarding daily payments during exceptional situations affecting society. The authorities and the financial sector should continue to enhance their preparedness for coping with severe disruptions in society that threaten the availability of normal banking and financial services.

A wide coalition of countries have imposed economic sanctions on Russia for its brutal aggression against Ukraine. The sanctions regime has impaired – but not exhausted – Russia’s financial and technological ability to make war.

There is still work to be done to improve the financial system’s resilience to crises. Key steps would include a stronger cap on household borrowing in Finland, and a common system of protection for bank deposits across Europe.

Especially households with high debts in relation to their income may come under particluar strain in the near future, as both loan servicing and other daily costs are rising at the same time.