Global growth has slowed substantially during the course of the current year. One cause of this has been the trade war between the United States and China. Brexit, too, has added to the uncertainty surrounding the future course of the economy.
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.
Slower-than-target inflation and a persistent decline in inflation expectations are key challenges for monetary policy. A negative equilibrium of prolonged low inflation and zero interest rates would fundamentally weaken monetary policy’s room for manoeuvre in balancing fluctuations in the economic cycle.