led to successive upward revisions to projected inflation, including the medium - term projections. in tandem, second - round effects via wages or mark - ups have been moderate, but the greater persistence of inflation has increased the risks of a deanchoring of medium - term inflation expectations. against this backdrop, the ecb's response has been to tighten monetary policy, combining gradualism and forcefulness in an effort to keep inflation expectations anchored. the normalisation of our monetary policy began in late 2021 with the announcement that net asset purchases would cease by the end of the first half of 2022. subsequently, we have raised the deposit facility rate to 2 %, a cumulative increase of 250 basis points ( bp ), the fastest in the euro's history. we have also created the new transmission protection instrument to ensure the smooth transmission of monetary policy across the euro area. we have amended the conditions of the longer - term refinancing operations, with the specific aim of strengthening the transmission of interest rate increases. and we have announced our intention to stop reinvesting, from early march 2023, all the principal payments from maturing securities under our asset purchase programme, which will give rise to a gradual and predictable reduction in the size of the portfolio. overall, this monetary policy normalisation process has already translated into a significant increase in market interest rates. but what can we expect in the future? at the last governing council meeting we stated that interest rates would still have to rise significantly at a steady pace to reach levels that ensure that inflation will return to its target. as i mentioned earlier, the latest ecb projections forecast inflation of 2. 3 % ( i. e. above the 2 % target ) in 2025. those projections were based on the market expectations for the future path of interest rates when they were prepared. deeming the projections valid, interest rates would therefore need to rise more than the markets expected when they were prepared in order for inflation to return to its target. since the last ecb governing council meeting the maximum interest rate level expected by the market has actually increased by roughly 25 bp, to around 3. 4 %. we 4 / 8 bis - central bankers'speeches must bear in mind, however, that these market rates incorporate a positive term premium. accordingly, the genuine market expectations for the maximum deposit facility rate would be somewhat lower than this figure. in any event, i would like to once again underscore the importance of considering the current setting's extraordinary

higher rate for 2023 ( 6. 3 % ) than expected in september ( 5. 5 % ) and june ( 3. 5 % ). inflation is then expected to fall gradually to an average of 3. 4 % in 2024 ( compared with the september forecast of 2. 3 % ) and of 2. 3 % in 2025. the upward revision to inflation for 2023 and 2024 is the result of recent inflation data reflecting, as i mentioned earlier, a stronger and more persistent inflationary episode than expected, the fiscal measures adopted to soften the impact of inflation on households and firms ( which reduce inflation in the short term but increase it when they are rolled back ) and the expectations, in line with the latest information, for stronger wage growth. the aforementioned macroeconomic context has also triggered a deterioration in financial stability. the combination of higher inflation and lower - than - expected economic growth, together with rising interest rates, is adversely affecting households'and firms'ability to pay, especially among the most vulnerable segments, which are characterised by low income levels, dependence on energy and food products and, in some cases, high indebtedness. 2 / 8 bis - central bankers'speeches meanwhile, the high levels of government debt following the pandemic, alongside the tightening of financial conditions, represent a vulnerability and limit the space to adopt fiscal expansion measures. this setting is also subject to an extremely high level of uncertainty, stemming, above all, from the course of the war in ukraine and its economic repercussions, which are hard to predict. however, inflationary pressures also pose a genuine risk. whether they increase further depends not only on the course of the war, but also on internal factors, such as a possible persistent rise in inflation expectations, or higher - thanexpected increases in wages or mark - ups. more persistent inflation would require a sharper tightening of monetary policy, which would render those public or private agents in a less sound economic and financial position more vulnerable. this could have a greater - than - expected impact on their spending levels. 1. the economic policy response against this backdrop, i would like to share my opinion on how economic policy should respond. first, i would like to underscore that the current situation is far different from that triggered by the pandemic. we then faced a temporary but highly adverse shock, in a setting free of inflationary pressures. that environment warranted a forceful monetary policy response, in order