same direction. such expectations will have a strong, immediate impact on the money market yield curve at longer maturities, since money market rates are largely determined by expectations of future policy rates. persistent policy changes are also more likely to affect bank lending rates, since a persistent rate change is more likely to be passed through. both channels will allow the effectiveness of changes in the policy rate to be enhanced. 21 of course, when taking our decisions, we are not mechanically bound by such observations on monetary policy, despite the intellectual elegance of the underlying models. nevertheless, i can recognise the pattern of the ecb ’ s interest rate decisions in this stylised characterisation. the lower - frequency component of the interest rate cycle – which is driven by long - lasting or persistent developments in policy rates – influences economic behaviour and, ultimately, the evolution of price developments much more than the high - frequency component associated with the exact timing and magnitude of any one policy decision. whether interest rates increase by 25 or 50 basis points in one month or another is less important than our ability to steer the longer - maturity rates of relevance to spending decisions. while the former may dominate ecb watchers ’ commentaries, it is the latter that gives us the leverage to stabilise longer - term inflation expectations and fulfil our mandate. with this consideration in mind, our approach has often been characterised as “ steadyhanded ”. the ecb has acquired a reputation for moving interest rates in a steady and persistent fashion over time. this is a conscious choice. such deliberate and persistent moves strengthen transmission, thereby proving effective in achieving our objective of price stability. when a central bank enjoys a reputation for implementing monetary policy in a steadyhanded fashion, private sector expectations of future interest rates will move in a manner consistent with policy - makers ’ intentions at all maturities in response to a policy announcement or measure. as a result, changes in policy rates will have significantly larger effects on aggregate demand and future price developments than would otherwise be the case. by implication, less extreme changes in policy interest rates will be necessary in order to achieve our goal. our reputation for steady - handed – and thus effective – policy action will be bolstered. and more effective policy action will contribute to a successful track record in terms of meeting our objective, thereby delivering price stability. an effective monetary policy need not, therefore, be an “ activist ” monetary policy, at least to the extent that activism is understood to imply significant immediate changes to policy rates

of the supply chain disruptions resulting from recent restrictions in asia. following a steady rise in the course of 2021, inflation reached a record high of 7. 4 % in march 2022, remaining at this level in april. price increases will most likely remain high over the coming months, mainly because of the rise in energy costs but also due to higher food prices and renewed supply chain disruptions. medium - term inflation expectations remain anchored, close to our 2 % target. that said, we are closely monitoring for second - round effects, notably wage - setting behaviour. we need to prevent the scenario where the high inflation that we currently see becomes entrenched in expectations. we are faced with an exceptional degree of uncertainty regarding the outlook for economic activity and inflation. so we need to move gradually and cautiously as we normalise our monetary policy. at our april meeting, the ecb ’ s governing council judged that the incoming data reinforced our expectation that net asset purchases under the asset purchase programme should be concluded in the third quarter. i would expect this to happen earlier in the third quarter rather than later. a first interest rate hike could take place some time after that, depending on our evolving assessment of the outlook. our june staff projections will put us in a better position to appraise where the euro area economy is heading. we need to observe the impact that shifts in financing conditions and the erosion of purchasing power are having on activity and inflation dynamics. for the past two years, the combination of fiscal and monetary policy has been crucial in helping the euro area to navigate the pandemic. this combination remains critical today. monetary policy has to ensure that inflation stabilises at 2 % over the medium - term while fiscal measures need to be very selective, targeted and temporary – also in part because fiscal space is now more limited than it was in 2020 and 2021. despite the current uncertainty, financial markets have, so far, remained relatively calm. if stress conditions arise, we will deploy flexibility to ensure that monetary policy is transmitted smoothly across the euro area, as we did to good effect during the height of the pandemic. financial stability the macroeconomic forces i have just discussed, amplified by the economic fallout from the russiaukraine war, also have implications for the financial stability outlook. the improved economic conditions throughout 2021 helped to reduce near - term risks to financial stability. but medium - term vulnerabilities continued to build up in the latter half of last year. the pandemic left