of next year, dampening annual inflation. our baseline scenario foresees inflation gradually increasing thereafter, but remaining below our 2 % target over the medium term. inflation could prove weaker than foreseen if a renewed tightening of pandemic - related restrictions were to affect economic activity. on the other hand, price pressures could become more persistent if supply bottlenecks last longer or wages rise more than is currently anticipated. so far, there is no evidence of significant second - round effects through wages and inflation expectations in the euro area remain anchored, but we continue to monitor risks to the inflation outlook carefully. monetary policy the ecb ’ s governing council concluded its review of our monetary policy strategy in july. as part of the review, a symmetric 2 % inflation target over the medium term was adopted. our new strategy also recognises the importance of taking into account the effective lower bound on nominal interest rates, which can require especially forceful or persistent monetary policy 1 / 4 bis central bankers'speeches measures. in support of this inflation target and in line with our monetary policy strategy, the governing council revised its forward guidance on the key ecb interest rates. we expect them to remain at their present or lower levels until we see inflation reaching 2 % well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2 % over the medium term. preserving favourable financing conditions over the pandemic period is essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium - term price stability. the governing council regularly recalibrates the net purchases under the pandemic emergency purchase programme ( pepp ) based on a joint assessment of financing conditions and the inflation outlook. at its meeting in september, the governing council assessed that the prevailing level of financing conditions, in conjunction with the slight improvement in the medium - term inflation outlook, allow favourable financing conditions to be maintained with a moderately lower pace of net asset purchases under the pepp than in the second and third quarters of this year. the governing council also confirmed in september its other measures, namely the level of the key ecb interest rates, the forward guidance on their likely future evolution, the purchases under the asset purchase programme, the reinvestment policies and the longer - term refinancing operations. it stands ready to adjust all of its instruments, as appropriate, to ensure

relevance. yes, low interest rates are holding back banks ’ profitability, but our monetary policy is stimulating the volume and strengthening the quality of bank lending so well that its overall impact on banks is, for the time being, positive. if growth is to rise significantly and interest rates return progressively to levels more favourable to savings, economic policies must make a more active contribution. what does that mean in practice? budgetary margins for manoeuvre can be used, where they exist. but in most countries of the euro area they are limited or non - existent. in france, for example, where public debt is verging on 100 % of gdp, another delay in reducing deficits would mean taking an unconsidered risk with business and household confidence. in all of our countries, however, the mix of revenues and expenditure could be made friendlier to investment. and a comparison of current growth rates in the euro area shows a clear advantage for countries that have implemented the most ambitious structural reforms, most notably in their labour markets. 1 / 2 bis central bankers'speeches weak growth, high unemployment and low rates are not inevitable. they reflect the legacy of the crisis but are also a consequence of economic policies that are lacking in ambition. the ecb will continue to protect the euro area from financial shocks, but the monetary climate will not always be so favourable. and the global economy could present new risks. it ’ s time to draw – and act on – the appropriate conclusions. 2 / 2 bis central bankers'speeches