the short to medium term, are mainly linked to more persistent supply side bottlenecks and stronger domestic wage - price dynamics. figure 4 shows the option - implied distribution of inflation. the darker - shaded areas show that the likelihood of deflation and low inflation outcomes has markedly declined. at the same time, the probability of inflation exceeding our 2 % target over the next 5 years increased notably. so this figure underlines that market participants are taking the possibility of higher inflation more seriously as both observations are in line with rising inflation risk premiums. overall, market - based inflation expectations are much more centred around the ecb ’ s 2 % symmetric inflation target. i very much welcome these developments. coming from a prolonged period of setbacks and deflation risks, this is good news. these developments in market perceptions of inflation also have important implications for monetary policy as they affect financing conditions – these are the conditions for people and businesses to finance their investments. for a given nominal interest rate, higher inflation expectations would lead to lower real rates and thus an easing of financing conditions. generally speaking, higher inflation expectations, however, also translate into higher longer - term nominal interest rates. the net effect on the economically - relevant real rate is thus unclear. in december 2020, the governing council pledged to maintain favourable financing conditions. and we would do this by calibrating purchases under the pepp. this calibration is, of course, a continuous exercise – because favourable financing conditions depend on the changing drivers of nominal interest rates, inflation expectations and the equilibrium rate. over the summer, for instance, the ecb governing council frontloaded some of its purchases under the pepp. we did this to counter a possible rise of nominal yields partly driven by spillovers from the us, as i outlined in my previous talk at the euro50 meeting in march this year. by doing this, we ensured that financing conditions did not tighten before the growth and inflation outlook in the euro area was on firmer ground. recently, the governing council has become more confident about the firmness of the european recovery. as price pressures in the euro area increased, we modestly recalibrated the pepp in september. so to complete the circle. on the first slide i showed you that the pandemic - induced inflation gap is closing. against this backdrop, a moderate rise in interest rates is consistent with our pledge to maintain favourable financing conditions going forward – that is, as long as higher interest rates are driven by higher growth

ltd, hsbc, and barclays bank plc., were appointed primary dealers. the bank of mauritius had decided that traditional bidders for bills at the weekly auctions would be gradually cropped out. between february 2002 and november 2003 transactions by primary dealers with banks amounted to rs1. 9 billion. their transactions with corporate bodies amounted rs10. 8 billion. with individuals their transactions amounted to rs1. 6 billion. these give a total amount of over rs14 billion worth of bills transacted by primary dealers. this value of transactions in bills reflects the potential that exists for the trading of government papers on the stock exchange. so far the number of eligible bidders at the weekly auctions held at the bank of mauritius that are not primary dealers has been reduced from around 250 to 11. over time only the primary dealers will be eligible to bid at the weekly auctions. institutional investors like the national pension fund, the national savings fund and all the remaining banks and other financial institutions will be required to purchase government papers on the secondary market. this would definitely require major changes in the investment decision - making process within these organizations. they would stand to gain in the medium - term. sometime in may last i initiated discussions with mr. sunil benimadhu, mr. vipin mahabeersingh and mr. chota moollan at the bank of mauritius on our intention to sell treasury bills through brokers on the stock exchange. several meetings were since held with myself, the managing director and the staff of the financial markets department of the bank of mauritius. discussions were held with stock brokers also. a set of rules and procedures has been defined and was submitted for approval by the financial services commission. some six weeks back i had a stimulative exchange of views with the honourable minister sushil khusiram on this project. the swiftness with which the honourable minister made regulations to that effect reflects his personal commitment and determination for the development of the market for government papers. i am thankful to him for having supported this initiative. with hindsight the decision to sell treasury bills over - the - counter at the bank of mauritius was a decision taken in the right direction. i am happy to see that finally the trading of bills will soon take - off on solid foundation. the stock exchange of mauritius, the central depository & settlement co. and the brokers have put in lots of efforts in the project and i am confident that it will not suffer the