Monetary policy

The Bank of Finland safeguards the operation of the Finnish payment system. Payment systems deliver transactions from one account to another, all the way from everyday retail payments to multi-billion euro transactions by banks.

Financial markets provide clues on the state of the economy and financing conditions. Crises emphasise the importance of market surveillance, as emerging problems in the economy and financial system are often first seen in markets.

Asset purchases have become an integral part of conducting monetary policy. The Bank of Finland implements the Eurosystem’s purchase programmes in Finland. Asset purchases lower interest rates in markets.

In Finland monetary policy is implemented by the Bank of Finland. Central banks have traditionally conducted monetary policy through interest rates. These days, they stimulate the economy by lending to banks at favourable terms and purchasing securities.

The aim of the two-tier system for remunerating excess liquidity holdings is to promote monetary policy transmission via banks to firms and households. The system is part of the ECB Governing Council’s broad package of monetary accommodation.

Negative interest rates have been an integral part of the ECB's overall monetary accommodation for just over five years now. Research indicates that the advantages of slightly negative interest rates outweigh the disadvantages.

The economic outlook for the euro area has deteriorated rapidly. The impact of Brexit on Europe as a whole is hard to predict. Another factor overshadowing the global economy is the trade dispute between the USA and China.

Funding banks via longer-term refinancing operations has been a key feature of ECB monetary policy in recent years. With the latest of these, the ECB has succeeded in encouraging banks to increase lending to the private sector.

Price stability has been pursued with different monetary policy strategies. A successful strategy increases the effectiveness of monetary policy.

The fastest stage of growth in the euro area looks to have passed, but momentum remains strong. Uncertainty is being fuelled by protectionism and Italy’s domestic economic policy.

There are more question marks over monetary policy normalisation than there are over traditional monetary tightening.

The ECB’s Expanded Asset Purchase Programme has recently raised TARGET2 balances, but the reason for the increase is now different than during the sovereign debt crisis.

Euro area inflation has been slow in recent years. The way slow inflation was explained before the crisis has been challenged.

The reinvestment of maturing holdings, i.e. the replacement of maturing holdings with new ones, is gradually becoming an increasingly important part of an appropriate monetary policy stance.

The favourable outlook for the global economy is overshadowed by the threat of protectionism. In the euro area growth has picked up. Some of this acceleration is on a sustainable basis, but long-term growth is likely to remain slower than pre-crisis growth.

In the aftermath of the global financial crisis many central banks cut their policy rates close to zero and introduced non-standard monetary policy measures. The new situation has also presented a challenge for monetary policy modelling.