Forward guidance

Forward guidance means the indications (communication) given by the ECB Governing Council regarding its intentions in relation to future monetary policy, be it in terms of the key interest rates or the asset purchase programmes.

For example, the forward guidance may link the deactivation of certain instruments to the inflation figures. The ECB Governing Council has been using forward guidance since July 2013. Forward guidance can steer the expectations of economic operators and reduce the uncertainty over monetary policy measures, thus fostering the appropriate transmission of monetary policy easing.

The ECB Governing Council’s current forward guidance is as follows:

In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target

The Governing Council expects to continue the monthly net asset purchases under the APP  for as long as necessary to reinforce the accommodative impact of the key interest rates and to end them before the Governing Council starts to raise the ECB’s key interest rates.

The Governing Council also intends to continue reinvesting the whole of  the principal payments from maturing securities purchased under the APP for an extended period of time past the moment when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.