still elevated from a historical perspective and still well above levels deemed consistent with price stability. 2 / 4 bis - central bankers'speeches on the other hand, overall inflation was until recently below the euro area average but in recent months has tended to exceed it. this reflects some base effects of sharply declining energy prices in other countries with lower subsidies than ours, but as we shall see there are some domestic factors at play. overall inflation in malta is set to ease further in the coming months. the disinflation process is largely being supported by the resolution of supply chain bottlenecks and the lagged impact of tighter monetary policy on imported inflation. furthermore, as pandemic - related re - opening effects fade out, imbalances between the demand for and supply of consumer services are also correcting. nevertheless, there are a number of domestic factors that are working in the opposite direction. these include a still dynamic economy buoyed to some extent by the support to demand arising from the energy subsidies. the weak pass - through of higher monetary policy ratesto deposit and lending rates in malta is another factor supporting robust credit growth, especially on the real estate market. this state of play may be good for economic growth in the short - term. however, it also means that the power of a key policy tool that is geared towards dampening demand and hence inflationary pressures is severely diluted in malta, where the direct transmission of tighter monetary policy to the domestic economy is impaired. at the same time, the indirect inflationary effects through import prices are strong. this means that for the disinflation process to accelerate, more ambition is required to address impediments to the reallocation of resources across sectors and lift the supply potential of the economy. the timely absorption of eu funds under nextgenerationeu is therefore key, as are enhanced incentives that support digitalization and upskilling. the fiscal stance is also set to shape the path of inflation going forward. in this regard, misalignments between fiscal and monetary policies are to be avoided to the extent possible. fiscalsupport must be targeted and temporary. both the imf and the commission are expecting a gradual reduction in energy subsidies. earlier this week the commission provided us with more clarity regarding the forthcoming fiscal rules, with an agreement expected in december, asthe stability and growth pact ( sgp ) escape clause will be deactivated before the end of the year. from my experience the rating agencies main focus boil

##s down to the debt / gdp ratio. here we have a few experiences to go by. our past success to get out of an excessive fiscal deficit and gradually move to surplus territory can be attributed to various factors. but essentially the underlying force was purely the macroeconomic debt dynamics equation where the country's rate of economic growth has to exceed the rate of interest. the current and future environment cannot be compared to the pre - covid period. it will definitely be more challenging this time. so nobody in his or her right senses will ask for a sharp fiscal consolidation. but wherever the economy allowsit, we should grab the opportunity to make further progress towards stabilising and reducing the primary imbalance. the future is highly uncertain and shocks could come from anywhere, so building buffers will enhance the resilience of our economy. 3 / 4 bis - central bankers'speeches one word regarding the bank's macroprudential response the sluggishness of monetary policy transmission is also affecting financing conditions. while the financial cycle has turned in the euro area, in malta the real estate cycle is still on an expansionary trajectory, which is contributing to further concentration risks in the banks'loan portfolios. macroprudential policy comes at the forefront to correct such imbalances. a case in point is the central bank of malta's recent implementation of a sectoral systemic risk buffer to address the robust mortgage growth domestically. preserving resilience of the financial system remains key. conclusion overall, there is no space for complacency, and it would be unwise to assume that we are at the end of the current monetary policy tightening cycle, or that a cut in policy rates for the euro area is imminent as uncertainty in the global geo - political environment, and its potential impact on europe, is still very high. the ecb's governing council will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary to ensure that inflation returns to its 2 % medium - term target in a timely manner. and when that happens, that would be the best christmas present, hopefully for next year. thank you all for your attention, i wish you all a merry christmas. 4 / 4 bis - central bankers'speeches