As you are all well aware, during 2018, the European Central Bank gradually scaled back the nonstandard monetary policy measures that it had introduced to combat the risks of a long period of low inflation and possible deflation. In January, the monthly purchases in terms of the Asset Purchase Programme were halved from € billion to € billion. They were halved again, to € billion, from October. The Governing Council currently anticipates that, subject to incoming data confirming the medium-term inflation outlook, the net purchases will cease altogether in December 2018. Indeed, even after net asset purchases have ended, monetary policy will continue to provide support to the euro area economy as the stock on Central Banks’ balance sheets will be maintained with the re-investment of maturing bonds. The ECB’s key interest rates remain very low, with the overnight deposit rate standing at -0.4%. The Governing Council expects them to remain unchanged at least through the summer of 2019. At the same time, the Governing Council will ensure that ample liquidity conditions will continue to prevail for as long as needed by reinvesting principal payments from maturing securities for an extended period of time. This combination of very low interest rates and ample liquidity should ensure favourable financial conditions for firms and households, underpinning economic activity, and should strengthen the sustained convergence of inflation to the target. Looking ahead, domestic demand will play an important role in economic growth. The prospects in this regard remain favourable.

The-not-so-distant past has taught us that structural overreliance on real estate poses considerable economic pain in a downturn. Indeed, despite a turnaround in the real estate market since 2014, some banks have not yet fully recovered from past overexposure to this sector. While households’ balance sheets remained broadly sound, one also cannot overlook their increasing exposure to this sector. This, in turn, is being reflected in growing concentration in the banks’ loan portfolios. The Central Bank of Malta, in consultation with the MFSA through the Joint Financial Stability Board, is taking pro-active steps by introducing borrower-based measures to increase the resilience of both banks and borrowers to such potential threats. Undoubtedly, from a supervisory perspective, the past two years have been very challenging. Two banks had their licence withdrawn, while another was put under the administration of a competent person. Despite the negativity of such developments, these are in themselves indicative of the fact that Maltese Authorities are actively taking the right measures to protect the sector from inappropriate behaviour. We must constantly bear in mind that from a reputational point of view we are only as strong as our weakest link and that the externalities that each institution transmits to the system, be it big or small, in the periphery or at the core, is always material in a small financial centre such as Malta. Furthermore, such negative externalities may also impact the use of  infrastructural gateways that service the industry, without which, the entire financial sector would be isolated.