on euro area bond yields. in my view, there is much to be said, then, for soon setting aside the practice of replacing all maturing bonds. this additional tightening signal would underscore our commitment to ensuring that inflation returns to the medium - term target of 2 % in a timely manner. if we act too hesitantly, we run the risk of having to tighten monetary policy even more severely further down the road. past experience, too, has taught us that if monetary policy gets behind the curve, medium - term inflation expectations adjust upwards. and that would make it far more difficult for monetary policy to achieve price stability. 2 / 5 bis - central bankers'speeches this is why it would be wrong to now hold back on further steps towards normalisation for fear of a downturn. on the contrary, unrestrained inflation is itself a burden on the economy. the longer inflation remains high, the more of a strain it places on consumption and investment. and the greater the risk of it becoming entrenched at a high level in the medium term. that has to be prevented from happening. for my part, it is important that we be honest : curbing inflation also comes with a price tag. it is likely to temporarily be an additional dampener on growth. but the main culprits behind the economic weakness are the supply bottlenecks caused by the pandemic and the war. honesty also means acknowledging that the lift - off in interest rates will make interest rate risk materialise on balance sheets. this also affects us as a central bank : we hold a high stock of low - interest securities with, in some cases, very long residual maturities. the counterpart to these on our balance sheet is mainly short - term deposits of commercial banks. the interest on these is now rising. as a result, this may weigh on our annual results. the provisions on our balance sheet are available as an initial buffer against potential losses arising from financial risks. 4 fiscal policy : targeted softening of hardships we have to recognise that the path to price stability is not a sprint but a marathon. unlike the runners in the berlin marathon, we do not know from the outset how much longer we still have to run until we reach our goal. this is especially true since monetary policy measures do not have their full effect on inflation immediately, but only after a delay. to make rapid progress on this route, fiscal policy can also play a part. it is an enduring principle that sound public finances

that every undertaking, however well - intentioned, is generally accompanied by unforeseen repercussions that can overshadow the principal intention. ” let me illustrate, continuing with my road analogy. in road development, one option to deal with a traffic - congested road is to build a bypass or an alternate road. unfortunately, building a bypass may decongest the existing road, but as often happens, with new developments in the area of the bypass, we would now have, instead of just one congested road, two traffic congestions. many analysts have said that “ the law of unintended consequences ” was working spectacularly in the run up to this current crisis. one evidence of this is the benign macroeconomic environment created by the low interest rate regime prevalent during the first half of this decade. this should be a good thing. however, this environment led to the search for higher yields, that fueled unprecedented asset price increases and at rates faster than the growth in household incomes. this further led to a loss of rationality ( individuals believing house prices would never fall ) and extension of credit by financial institutions to sectors of the economy that normally would not qualify to borrow ( in other words, the so - called “ subprime ” borrowers ). sounds familiar? this was what transpired in the united states – low federal funds rate fueling a boom in mortgages with borrowers having doubtful credit histories, housing prices bubbled and burst, with the negative feedbacks affecting both the u. s. domestic economy and financial markets. another example is in line with risk spreading through financial innovations. the ability to spread risk should also be a desirable goal. however, the fast - paced evolution of financial products and services, along with the seemingly “ loose ” financial regulation – later on gave way to the unfortunate reality that risks were eventually “ concealed ”. through securitization and deleveraging, those hidden risks were effectively multiplied in the process. thus, while financial innovations have good intentions, they also have some side effects … if not prudently monitored or given appropriate form of regulation. these developments, together with a host of other factors, fueled the current crisis, which from all angles, can be considered our first truly global crisis. from what was first believed to be a us - centric subprime mortgage problem, the crisis has since transformed into financial turmoil and further into an economic growth crisis. from the us and europe, it has spread to