Member of the Executive Board of the European Central Bank Isabel Schnabel gave a lecture in Eesti Pank today as part of the lecture series dedicated to Professor Ragnar Nurkse, after which she joined a discussion panel with the governors of the central banks of the Baltic states and Finland.

The focus of the lecture was on scenario analysis for the outlook for inflation in the euro area, and in it Isabel Schnabel described the challenges ahead that makers of monetary policy face. She emphasised that as inflation currently remains high in the euro area, the focus of monetary policy should remain on how to bring it back to its target level of 2% in a timely manner. “History will not judge our intentions, but our success in delivering on our mandate”, she said. “Given that the path back to price stability hinges on a set of critical assumptions, policy should proceed gradually and cautiously”. She highlighted the need for central banks to use scenario analysis in the current uncertain environment to scrutinise the assumptions underlying the baseline outlook. “Being transparent about what could go wrong, and factoring this into the decision-making process, can help make policy more robust to contingencies that threaten the achievement of our primary mandate”, she explained.

The lecture was followed by a panel discussion between Isabel Schnabel and the Governors of the Baltic and Finnish central banks Madis Müller, Mārtiņš Kazāks, Gediminas Šimkus and Olli Rehn, which focused on the lessons from recent crises for monetary policy.

“We have reason to feel increasingly confident that inflation in the euro area is likely to reach the central bank target of 2% in lasting fashion in the second half of next year. This will allow the European Central Bank to lower interest rates gradually. Isabel Schnabel rightly emphasised in her speech though that this currently remains an assumption, and the final facts will only become clear during the coming year when we can see how the economy in the euro area is performing, and whether this is actually in line with our current forecasts”, said Madis Müller. “The central bank should consequently not rush too fast into any decisions, as it is still too early to declare that excessively high inflation is now definitively behind us”, he added.

• The text of the speech by Isabel Schnabel can be found on the website of the European Central Bank together with her slides.
• The event was recorded and can be watched on YouTube and Facebook.
• Photographs from the seminar can be found on the Eesti Pank Flickr account.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 56920 930
Press enquiries: [email protected]