mandate, both the magnitude of its effect and the channels through which it was transmitted are difficult to estimate precisely, and are anyway likely to have varied in both absolute and relative magnitude over time, as the economic context in which they were implemented changed. however one views that evidence, with inflation having risen and bank rate moving away from its effective lower bound, the case for employing those monetary policy tools has disappeared, at least for now. the mpc set out its plan for running down the asset portfolios accumulated through qe in its august 2021 monetary policy report. [ 17 ] consistent with that plan, once bank rate reached 0. 5 % in february of this year, reinvestment of maturing gilts in the qe portfolio ceased. the stock of quantitative easing has declined as a result. because the bank has published details of the gilts accumulated through qe, this runoff is entirely predictable to market participants, and has been conducted without destabilising market conditions. in parallel, the mpc announced that it would unwind its holdings of investment grade corporate bonds held for monetary policy purposes. reinvestment also ceased in february, and sales of corporate bonds are scheduled to commence in the autumn. again consistent with the plans announced last august, once bank rate reached 1 % in may the mpc asked bank staff to work on a strategy for uk government bond sales. an update on this work is scheduled for the august mpc meeting. just to be clear, the mpc has not yet taken a decision about whether to commence gilt sales. but were such sales to be implemented, the mpc has committed to doing so in a gradual and predictable manner. in my view, it would be preferable to have any such gilt sales running ‘ in the background ’, rather than being responsive to month - to - month data news. [ 18 ] that would add to their predictability. and it would also avoid that they are interpreted as offering a signal about the future path of bank rate, which as the active tool of monetary policy is first in line to respond to data news. in its august 2021 communication, the mpc judged ‘ that the impact on monetary conditions of a reduction in the stock of purchased assets, when conducted in a gradual and predictable manner and when markets are functioning normally, is likely to be smaller than that of asset purchases on average over the past ’. mechanically, selling assets in well - functioning markets implies the market functioning channel of qe transmission should not

price competitiveness should support euro area exports. this assessment is in line with available forecasts and projections. this baseline scenario for growth continues to be surrounded by a good deal of uncertainty. on balance, risks to economic growth lie on the downside and are notably related to the persistence of high oil prices, the low level of confidence prevailing in the euro area and global imbalances. turning to price developments, annual hicp inflation was 2. 1 % in june, according to eurostat ’ s flash estimate, compared with 1. 9 % in may. over the next few months annual hicp inflation rates are expected to fluctuate around current levels and may not fall below 2 % for the remainder of 2005. this outlook mainly reflects recent developments in oil prices, which were seen as an upside risk in the context of the june 2005 eurosystem staff inflation projections. however, wage increases have remained contained over recent quarters and, in the context of moderate economic growth and weak labour markets, this trend should continue for the time being. overall, we continue to see no significant evidence of underlying domestic inflationary pressures building up in the euro area. at the same time, upside risks to this scenario for inflation warrant close monitoring. these risks relate mainly to oil price developments and their potential to lead to second - round effects stemming from wage and price - setting behaviour. it is important that the social partners continue to meet their responsibilities. moreover, uncertainties about future developments in administrative prices and indirect taxes need to be taken into account when assessing currently available inflation projections. looking at inflation prospects over medium to longer horizons, our assessment is also based on the results of our monetary analysis. in line with developments since mid - 2004, monetary and credit growth in the euro area remain strong. the stimulating impact of the low level of interest rates has remained the dominant factor driving monetary developments, as reflected in the strength of m1 growth and the dynamism of loans to the private sector. liquidity remains ample by all plausible measures. overall, monetary developments support the case for vigilance with regard to upward risks to price stability over medium to long - term horizons. to sum up, the economic analysis confirms that domestic inflationary pressures over the medium term remain contained in the euro area, while oil price developments in particular imply some upward revisions to the main scenario for price developments. the monetary analysis identifies risks to price stability over the longer term. overall, cross - checking the information from the two pillars suggests a need for