Bank of Finland through 2021

https://annualreport.bankoffinland.fi/2021/operations-and-strategy/greetings-from-the-governor/ The COVID-19 pandemic shaped the economy and life in general in 2021. Nevertheless, increased vaccine coverage improved the situation, and the pandemic-related restrictions were in places dismantled. In both Finland and the euro area, the economy and employment improved briskly with the support of monetary and fiscal policy. Even so, viral variants and supply-side disruptions in the economy increased the prevailing uncertainty. Inflation quickened in 2021, driven by the rapid rise in energy prices and production bottlenecks. These factors are expected to subside with time. However, inflation, which has been faster than in recent years, is expected to continue at this higher level for longer than previously forecast. With the help of monetary policy, we ensured financing conditions remained favourable for businesses and households and continued most of the measures introduced at the start of the COVID crisis. In December 2021, we decided to trigger a gradual normalisation of monetary policy, now made possible by the economic recovery and the inflation outlook. The year was historic, in the sense that the European Central Bank updated its monetary policy strategy. The Bank of Finland took an active part, not just in the launch of the update, but also in its preparation. Research conducted at the Bank of Finland lay the foundation when we were assessing the needs for change and the direction of the update. The most significant change is the introduction of a symmetric 2% inflation target over the medium term. Both negative and positive deviations from this 2% target are considered to be equally undesirable. Inflation may also temporarily rise above 2%. The new strategy was immediately put to use to facilitate avoidance of sudden movements and provide more prolonged support for the economic recovery. Monetary policy normalisation needs to be implemented consistently, with a steady hand. A stable and predictable outlook for prices – and hence public confidence in the continued purchasing power of our money – is an essential prerequisite for sustainable economic growth and high employment. Environmental aspects will be given more room in the implementation of monetary policy in the future. The Bank of Finland was one of the first central banks to set the objective of carbon neutrality for its own investments, and we published a road map on how to achieve this objective. By channelling money flows into low-carbon investments, we will reduce the climate risks attached to our investment portfolios and at the same time serve as an example, one of many.