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Eesti Pank Annual Report 2015 EESTI PANK ANNUAL REPORT 2015 2016 © Eesti Pank, 2016 Address Estonia pst 13 15095 Tallinn Phone 668 0719 Fax 668 0836 E-mail [email protected] Website www.eestipank.ee Subscriptions for publications of Eesti Pank Phone 668 0998 Fax 668 0954 e-mail [email protected] ISSN 2382-8811 Editor: Kaja Kell Layout: Urmas Raidma CONTENTS FOREWORD BY THE GOVERNOR OF EESTI PANK...................................................................................4 THE SUPERVISORY BOARD OF EESTI PANK ...........................................................................................8 ACTIVITIES OF EESTI PANK IN 2015 .......................................................................................................13 PARTICIPATION IN MONETARY POLICY DECISION-MAKING IN THE EUROSYSTEM AND IMPLEMENTATION OF DECISIONS ..............................................................13 Monetary policy decisions of the Eurosystem ...................................................................................13 Implementing monetary policy decisions in the euro area and Estonia ..............................................15 Eesti Pank’s monetary policy operations ..........................................................................................16 SAFEGUARDING FINANCIAL STABILITY .............................................................................................18 Macroprudential policy ....................................................................................................................18 Financial sector policy .....................................................................................................................21 MANAGING CURRENCY CIRCULATION ..............................................................................................23 Cash circulation in Estonia ...............................................................................................................23 Payment systems ............................................................................................................................26 COMPILING STATISTICS FOR THE ESTONIAN FINANCIAL AND EXTERNAL SECTORS ......................28 ECONOMIC ANALYSIS AND CONSULTATION .....................................................................................30 Monitoring and economic analysis at Eesti Pank ..............................................................................30 Economic forecasts .........................................................................................................................30 Economic research..........................................................................................................................30 Advisory functions ...........................................................................................................................31 INTERNATIONAL COOPERATION AND PUBLIC COMMUNICATIONS ..................................................32 International cooperation .................................................................................................................32 Public relations ................................................................................................................................32 FINANCIAL ASSET MANAGEMENT .....................................................................................................35 Reserve management .....................................................................................................................35 ACCOUNTABILITY, GOVERNANCE AND ORGANISATION, AND HUMAN RESOURCES POLICY ..........37 Central bank accountability .............................................................................................................37 Governance and organisation ..........................................................................................................38 ANNUAL ACCOUNTS OF EESTI PANK FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 .......................................................................42 APPENDIXES ........................................................................................................................................... 74 APPENDIX 1. THE RESPONSIBILITIES OF THE SUPERVISORY BOARD OF EESTI PANK ....................74 2015 APPENDIX 2. DECISIONS OF THE SUPERVISORY BOARD OF EESTI PANK IN 2015 ..........................75 APPENDIX 3. DECREES OF THE GOVERNOR OF EESTI PANK IN 2015 ..............................................76 APPENDIX 4. PUBLICATIONS OF EESTI PANK IN 2015 .......................................................................78 Annual ReportAnnual Eesti Pank 3 FOREWORD BY THE GOVERNOR OF EESTI PANK Estonia and Europe both saw a lot of discussion in 2015 about how the economy could be returned to faster growth. When growth has been below public expectations for a long time, it is quite natural for questions to be asked about the economic policies that have been followed. Sources of growth in the European economy These are not the best of times for the global economy as growth has slowed around the world and risks have increased. The year 2015 was marked for Europe by the confluence of several complex crises, as it faced up to the refugee crisis, the tensions in Ukraine, terrorism, and the Greek economic woes. The economy in Europe grew despite this, though growth was sluggish primarily because not enough of the reforms needed to encourage it were made. Inflation in the euro area remained close to zero even though the main target of the central banks of the euro area is for inflation to be below, but close to, 2% over the medium term. As there is a danger that inflation may remain low for a long time, the central banks of the euro area have worked alongside governments to stimulate their economies. They have reduced the cost of credit to very low levels and have purchased a range of assets to inject more money into the economy. It is expected that the asset purchases of the euro area central banks will be large, and 1.7 trillion euros has been spent in two years. In the first ten months of last year, Eesti Pank bought 1.2 billion euros of bonds and we will make further purchases of around 2 billion euros in 2016. Large-scale asset purchases help to keep interest rates low and so support the economy, but they come with several risks as asset prices may rise so far in some markets that bubbles could start to appear. Asset purchases also increase the risks that Eesti Pank faces, and so we need to continue increasing our reserves to reduce that risk. Central banks can only use monetary policy to revive an economy over the short term, but it will not cause the economy to grow over the long term. Long-term economic growth results from people finding ways to improve the competitiveness of products, inventing new products, and investing in bringing those innovative ideas to reality. This requires governments to follow reliable and predictable economic policies and to work to create a climate that encourages business by making the adjustments and reforms that are needed to boost competitiveness. Euro area governments have made some of the reforms needed to boost growth, but there are still many 2015 countries that have not been able to bring their fiscal policies within the agreed rules of the European Union. Although a loose fiscal policy can lift growth, our very recent experience in Europe shows that states cannot live beyond their means over the long term, and doing so can lead a country to suffer serious consequences. Reforms and restructuring, and the results they can lead to, take time, but there is no alternative to them in the long run. Annual ReportAnnual Eesti Pank 4 Despite the difficulties, Europe’s position is by no means hopeless and Europe and the world can expect faster rather than slower growth ahead. We are moving in the right direction, even if we are doing so slowly, and if we do the right thing and have enough flexibility we will be able to cope with the difficulties. A crossroads for the Estonian economy There are contradictions in the picture of Estonia’s economic performance. The economy is growing only slowly and this growth is based largely on consumption. Consumer confidence increased last year as unemployment has fallen to a very low level, wages are rising fast and prices have on average been falling for a year and a half. In contrast, the productivity that is the internal motor of growth in an economy has been stuck fast for a long time now. Companies have already made many of the easy gains in raising productivity and so there is now a danger to Estonian competitiveness, which is also indicated by the loss of market share that our exports experienced last year. The current state of the economy indicates that Estonia is at an economic crossroads. The headwinds of a shrinking and ageing population are starting to blow ever harder and if our companies do not make investments to support future growth and the state does not make the reforms that will help the economy to grow, we will find ourselves stuck. Choosing this road will inevitably lead to smaller pay rises in the future or even to pay cuts and rising unemployment. We remain optimistic at Eesti Pank though, and we forecast that Estonia will actually see productivity increase and the economy improve. Estonia has some advantages in this over the other countries in Europe, as our national finances are in good order, the national debt is small and the banking sector is in a good state, which all means that financing conditions for companies
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