how to square low inflation with policy effectiveness – centres on two separate questions. how should we, the central banking community, evaluate the effectiveness of our own actions? and why, despite years of extraordinary policy support, is inflation remaining stubbornly low? evaluating our own actions is surprisingly difficult. there is no handbook, no checklist that we can use to consistently grade our actions. ultimately, of course, there can only be one yardstick to measure central bank effectiveness : our track record in delivering inflation consistent with our aim. but does inflation failing to converge to our aim mechanically imply that our actions have not been effective? my answer is a clear “ no ”. despite unprecedented challenges to monetary policy implementation, central banks have succeeded in delivering financial and monetary conditions that are exceptionally supportive of real economic activity. many euro area firms can currently borrow in financial markets at negative rates. bank lending rates, also for small and medium - sized firms, are currently at, or close to, historical lows, with little dispersion across major economies. firms have responded to these incentives as economic theory would predict. over the past five years, real investment has expanded at a faster pace than in the five years preceding the global financial crisis. this is no small achievement considering the persistent uncertainty that has weighed on sentiment in recent years. investment, in turn, has boosted job creation. employment is up by 7 % compared with mid - 2014. and in many euro area countries wages are growing at the fastest pace in many years. all in all, ecb staff estimates show that, without our policy actions, euro area real gdp would have been up to 2. 7 percentage points lower at the end of last year, and inflation would have been up to half a percentage point lower every year over the past four years. explaining low inflation such counterfactuals – based on a wide range of models – are important proof that policy has been effective along the full chain of transmission – from financial market prices to economic activity and from the real side to the nominal side. for everything we know about how policy propagates through the economy, inflation today would be significantly weaker in the absence of our actions, maybe even dangerously close to deflation. but such counterfactuals are far too complex to lend true credibility to our actions outside of our narrow circle. they still raise the question as to why policy support has failed to promote a more robust convergence of inflation to levels that would allow a normalisation of policy – that

provision measures have improved system liquidity in the past weeks and stabilized broad funding conditions. however, risks to the growth outlook continue to be tilted to the downside and currently a ushaped recovery is expected. the challenge, therefore, is to provide tangible boost to the economy through the appropriate combination of fiscal response and monetary measures. rest assured, macroeconomic policy measures are in place to address downside risks associated with the covid - 19 pandemic. in line with this, the bsp will continue to work with market participants and relevant government agencies to ensure that its policy responses remain timely and appropriate particularly during these challenging times. thank you. 2 / 2 bis central bankers'speeches