Märten Ross, Deputy Governor of Eesti Pank, gave a speech at the Riigikogu today, affirming that Estonia's only special interest in contributing to euro-area monetary policy is price stability in the Eurosystem.

"There are no ambiguities in the implementation of euro-area monetary policy - its primary objective is price stability. Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices for the euro area of below 2%. Price stability is to be maintained over the medium term. Deviation from this objective by the Eurosystem central banks, involving Eesti Pank, is not in the national interests of a single Member State, including Estonia. This objective is our primary national special interest," said Mr Ross.

He repeated that it is price stability that the monetary policy decisions of the ECB's Governing Council proceed from, and the monetary policy interest rates were raised by 0.25 pp at the start of April due to growing inflation risks. "Both the global and the euro-area economy are recovering from the downturn faster than expected and showing more and more signs of a pickup. Although growth is still slower compared to the pre-crisis "normal" level, it is considerably more rapid than forecasted a year ago. However, the recovery is uneven across countries - some euro-area Member States are suffering from a debt crisis, which poses a threat to economic activity. Nevertheless, the improving situation of the global economy (and several other aspects) have markedly stepped up commodity prices in global markets. This also concerns the euro-area, where, based on recent data, inflation hiked to 2.8% in April.

According to the Deputy Governor, it is clear that the risk of price pressures has increased after the crisis in both Europe and the rest of the world. "It is very important that the recent inflation growth would not result in extensive medium-term inflation pressures. Thus, the Eurosystem central banks need to pay a lot of attention to reducing risks to price stability. Raising the interest rates was one of the measures to do that, and the rates are still low enough to support economic recovery."

"Growing commodity prices have increased inflation in Estonia as well, and this raises serious concerns," noted Ross. "The problem lies not so much in the inflation rate being faster than forecasted and outpacing the euro-area average, but in the threat that it may damage Estonia's competitiveness in longer term." In the Deputy Governor's estimate, the threat is somewhat alleviated by the fact that upward commodity price pressures have so far not vigorously passed through to other prices or wages. "Careful economic policy planning helps contribute to avoiding second-round effects, which may – as we can well remember from the recent downturn - result in far more negative consequences than could be expected."

Mr Ross' presentation to the Riigikogu covered four topics: monetary policy and price stability in the euro area, macroeconomic stability in Estonia, reform of the European fiscal framework from the viewpoint of monetary stability (including the Eurosystem's position), and financial stability.

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