perspective. in a low or negative inflation environment, consumption could be postponed in the expectation of further price reductions, putting pressure on firm revenues. given the downward rigidity in wages, firms cannot easily adjust through lower wages in a deflationary environment. so a deflationary environment could lead to higher unemployment and stagnation. also, low inflation increases the burden of servicing debt. indeed, with deflation the real interest rate starts rising. when nominal policy rates are close to the zero lower bound, higher real rates cannot be corrected by reductions in policy rates. the prolonged period of low inflation in the euro area since 2014 has prompted the ecb to introduce unconventional monetary policy measures ( see chart 6 ). chart 6 – hicp inflation these complement the reductions in the main policy rate so as to maintain an accommodative monetary stance. in january 2015 the ecb announced the launch of the asset purchase programme ( app ), first encompassing abs and covered bonds, and later extended to the purchase of sovereign bonds. at the euro area level, the ecb ’ s monetary policy strategy has gradually improved financial and credit conditions, as well as the ongoing economic recovery. the non - standard measures have resulted in higher equity and bond prices, higher liquidity and improved lending conditions. since june 2014 the transmission of policy rates to lending rates has improved, with declines in lending rates becoming more pronounced and more widely distributed across euro area countries. the bank lending survey confirms the improvements in broader credit conditions since the introduction of the app. as a result, credit to the private sector in the euro area has shown signs of recovery and registered a positive growth since may 2015, the first time in 36 months, as shown in chart 7. bis central bankers ’ speeches chart 7 – m3 and main counterparts on the inflation front, however, results continue to disappoint on the downside. the harmonised index of consumer prices in the euro area is just 0. 1 % in october 2015, following a period of negative or close - to - zero inflation. on the other hand, the latest inflation rate for malta, at 1. 6 %, is within reach of the ecb ’ s below but close to 2 % target ; it attests to the buoyancy of the economy. it also indicates that the app has had positive effects on malta ’ s economy. the main transmission channel has worked through the exchange rate. the depreciation of the euro against other major currencies has

josef bonnici : strengthening economic resilience address by professor josef bonnici, governor of the central bank of malta, at the annual dinner of the institute of financial services, saint julian ’ s, 20 november 2015. * * * honourable minister, members of the institute, distinguished guests, i would like to thank the president and committee of ifs malta for once again organising this annual dinner and giving me the opportunity to share my thoughts with such a distinguished audience. mr president, i am pleased to hear you speak about the institute ’ s commitment towards raising the standards of financial services education, as this is exactly what we need for our dynamic financial sector to remain successful and a key contributor to our economic development. over the years, the central bank of malta has worked closely with the institute, and more recently participated in the successful ifs annual conference on the future of pensions. this national conference acted as a catalyst to rekindle the debate on private pensions in malta. i commend the institute for this important initiative. i wish you success in all the institute ’ s future endeavours. introduction the current international economic environment poses a number of key challenges, including the weak recovery in the euro area, the slowdown in emerging economies, the enduring geopolitical tensions, and possible spill - overs from the us monetary policy that could affect financial conditions on a global scale. clearly, our economy is not immune from developments beyond our shores. against an uncertain economic and political landscape, our vision should be to turn challenges into opportunities to sustain economic growth in the long term. factors underpinning malta ’ s remarkable resilience the maltese economy has been vibrant, showing remarkable economic resilience in the face of the unstable economic environment elsewhere. in fact, the theme “ vibrant malta ” has been chosen for the european cultural days at the ecb in frankfurt, which this year focus on malta. earlier this month, we launched a cultural programme aimed to enhance awareness of malta ’ s cultural heritage. the theme reflects not only the current cultural scene but also our vibrant economy. malta is the most open economy in the euro area, having exports and imports of goods and services each over 150 % of gdp. despite this challenging factor, the maltese economy has managed to outperform its peers, with gdp growth consistently above that of the euro area average. a good perspective to this positive outcome is given in chart 1, which is an update of a chart i used in last year ’ s presentation ; since the