Bank of Estonia

ECB adjusts its capital key

Retrieved on: 
Wednesday, January 3, 2024

Communication shocks from the US spill over to risk in the euro area and vice versa, but traditional US shocks show no spillover effects to risk.

Key Points: 
  • Communication shocks from the US spill over to risk in the euro area and vice versa, but traditional US shocks show no spillover effects to risk.
  • Both monetary policy and communication shocks spill over to stocks, with euro area information spillovers being particularly strong.

Christine Lagarde: The path ahead

Retrieved on: 
Thursday, March 23, 2023

But to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today.

Key Points: 
  • But to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today.
  • At the same time, I have made clear that there is no trade-off between price stability and financial stability.
  • In my remarks today, I will discuss our policy path so far and what lies ahead.
  • Second, we faced a positive demand shock caused by the reopening of the economy after the pandemic.
  • That favourable demand environment allowed firms to pass rising input costs through to prices much faster and more strongly than in the past.
  • So, we had to adjust, as quickly as possible, a stance that had become inadequate.
  • That is why we put a great weight on the pace of our actions, hiking rates in large increments.
  • And we also communicated a clear upward path for rates, so that the public could be confident that monetary policy was on an anti-inflationary path, and that rates would soon leave accommodative territory.
  • In a sense, an emphasis on data dependence was less important because monetary policy had distance to cover across all scenarios.
  • The combination of shocks had two effects – on distance and persistence – which warranted further policy action.
  • And, in doing so, we could keep a firm grip on inflation expectations and ensure they remain anchored.
  • However, inflation is still high, and uncertainty around its path ahead has increased.
  • First, with high uncertainty, it is even more important that the rate path is data-dependent.
  • This means, ex ante, that we are neither committed to raise further nor are we finished with hiking rates.
  • This is visible, for example, if one compares the persistent and common component of inflation (PCCI) and the PCCI excluding energy.
  • The former has been declining strongly since the summer of last year, whereas the PCCI excluding energy has only stabilised.
  • Defined as those items in the core inflation basket for which wages account for more than 40% of input costs.
  • Employment growth in the public sector has accounted for about half of total employment growth since the end of 2019.

Frank Elderson: Maintaining prudence when navigating unexpected tides and firming currents

Retrieved on: 
Saturday, November 26, 2022

Indeed, these were some of the main considerations when assessing the macroeconomic outlook in the euro area exactly one year ago.

Key Points: 
  • Indeed, these were some of the main considerations when assessing the macroeconomic outlook in the euro area exactly one year ago.
  • Today, a mild recession in the euro area around the turn of the year is quite plausible, as ECB President Christine Lagarde recently highlighted.
  • [1] Today, we face euro area inflation that continues to be far too high, having reached double digits in October.
  • Today, long-term interest rates in the euro area are around 2.5 percentage points higher than when I was first due to speak to you last year.
  • Today, as Bundesbank President Joachim Nagel said just last week, - muss die Geldpolitik auf der Hut sein.
  • The increase in interest rates reflects several steps in the monetary policy normalisation which the ECB started in December 2021.
  • As both an ECB Executive Board member and the Vice-Chair of the ECBs Supervisory Board, I am particularly interested in how banks adjust to the shifting macroeconomic tides.
  • More importantly, banks and we as supervisors need to be mindful that the increase in interest rates does not occur in isolation.
  • [3] Moreover while the macroeconomic tides may have changed, many of the structural challenges facing banks have not.
  • Indeed, the underlying currents which banks were already affected by last year, are still very much present.
  • In fact, important currents have even firmed with the change in tides.
  • While the prevailing macroeconomic tides and the inescapable currents of the climate and environment crises may have different causes, they nevertheless have something important in common.
  • This is especially true when assessing the configuration of tides and currents in conjunction, in other words, when assessing how the macroeconomic environment and the climate and environmental crises interact.

Christine Lagarde: Monetary policy in a new environment

Retrieved on: 
Saturday, November 26, 2022

And this has implications for the focus of macroeconomic policy in the years to come.

Key Points: 
  • And this has implications for the focus of macroeconomic policy in the years to come.
  • And in this context, swings in demand caused by the closing and reopening of the economy have hit a wall.
  • [3] And in this environment, it is uncertain whether a seamless expansion of supply will continue and how global demand will be affected.
  • For monetary policy, this changing environment creates considerable challenges.
  • That is why we have been raising rates at our fastest pace ever by 200 basis points in our last three policy meetings.
  • But we also need to normalise our other policy tools and so reinforce the impulse from our rate policy.
  • But now the environment has changed completely and we need to ensure that the lower cost of funding the TLTRO created for banks does not impede monetary transmission when policy normalisation is required.
  • Similarly, large-scale asset purchases were necessary to expand the policy stance when interest rates were close to the lower bound.
  • In parallel, our tools for preserving the orderly transmission of monetary policy notably flexible reinvestments under the pandemic emergency purchase programme and the new transmission protection instrument will remain in place.
  • Monetary policy will ensure a timely return of inflation to our medium-term target.
  • But the economic outlook will also depend on the alignment between monetary policy and other actors.
  • In the current environment of high inflation, fiscal policy needs to be temporary, targeted and tailored.
  • Looking further ahead, while monetary policy can steer demand, it cannot remove existing constraints on economic growth.
  • The effects of this shift are uncertain, but the duty of monetary policy is not.
  • But if we want to rebuild our supply capacity and strengthen domestic sources of growth, other policy areas need to refocus.
  • International Monetary Fund (2022), Near-term Macroeconomic Impact of Decarbonization Policies,
    World Economic Outlook, October.
  • Lagarde, C. (2022), Monetary policy in a high inflation environment: commitment and clarity, lecture organised by Eesti Pank and dedicated to Professor Ragnar Nurkse, Tallinn, 4 November.

EBA issues Opinion on measures to address macroprudential risk following notification by the Estonian Central Bank (Eesti Pank)

Retrieved on: 
Friday, June 25, 2021

Based on the evidence submitted, the EBA does not object to the extension of the proposed measure, which will be applied for two years.

Key Points: 
  • Based on the evidence submitted, the EBA does not object to the extension of the proposed measure, which will be applied for two years.
  • The measure applies to credit institutions that operate in Estonia and use the IRB approach for calculating regulatory capital requirements.
  • Based on this analysis, the EBA does not object to the two-year extension of the application period of the measure.
  • The EBA confirmed its Opinion following the request of the Commission dated 26 July 2019 in relation to the revised notification received from Eesti Pank.

Indiana Digital Learning School Kicks Off 2019-2020 School Year with Strong Focus on Preparing Students for Future Careers

Retrieved on: 
Wednesday, July 31, 2019

INDLS is uniquely connected to the Union School Corporation and can offer the student the advantage of an Indiana Public School Diploma.

Key Points: 
  • INDLS is uniquely connected to the Union School Corporation and can offer the student the advantage of an Indiana Public School Diploma.
  • Students can also earn college credits through partnerships with local colleges and universities including Ivy Tech and Ball State.
  • This allows students to graduate from high school with a head start on college or career.
  • Indiana Digital Learning School (INDLS) is an online public-school program of the Union School Corporation, serving students across the state of Indiana.

EBA responds to the Commission on the Estonian Central Bank's proposed measures to address macroprudential risk

Retrieved on: 
Wednesday, July 31, 2019

The European Banking Authority (EBA) published today a response to a letter received from the European Commission (EC) regarding an EBA Opinion on the intention by Eesti Pank, the Estonian Central Bank, to introduce stricter national measures for credit institutions in Estonia using the Internal Ratings Based (IRB) approach, in accordance with Article 458 of the Capital Requirements Regulation (CRR). In its Opinion, the EBA had concluded that the evidence presented by Eesti Pank was not sufficient to support the suitability and appropriateness of the suggested measure. In the letter received by the Commission, the EBA was asked to either revise or confirm its Opinion following the submission of additional information by Eesti Pank. In its reply, the EBA assessed that there were not sufficient grounds to change its initial Opinion.

Key Points: 
  • In the letter received by the Commission, the EBA was asked to either revise or confirm its Opinion following the submission of additional information by Eesti Pank.
  • In its reply, the EBA assessed that there were not sufficient grounds to change its initial Opinion.
  • The EBA raised several concerns on the choice to deploy Article 458 of the CRR to address Eesti Pank's concerns.
  • The EBA assessed the additional information received and concluded that its Opinion of 15 May 2019 remains valid.