/ 4 bis central bankers'speeches structural change will not fail to leave its mark on the financial system. the pandemic will tend to amplify trends such as digitalisation. ultimately, banks must therefore be able to exit the market if their business models are no longer sustainable – and do so without jeopardising financial stability. thanks to the reforms of the past few years, we now have better instruments at our disposal for dealing with banks in distress. although the financial system has so far coped well with the fallout of the coronavirus pandemic, pre - existing vulnerabilities are likely to increase in the medium term. the measures taken to mitigate the effects of the crisis have driven up debt in the private and public sectors. persistently low interest rates might encourage market participants to take on more risk in a search for yield. credit risk may be underestimated, and the recovery value of collateral overestimated. this is one reason why the real estate market remains a focal point of our analyses. to date, the pandemic ’ s impact on the market for residential real estate has been barely visible. in the second quarter, prices for owner - occupied housing across germany rose by just under 7 % compared with the previous year. recently, banks have issued around 6 % more housing loans on an annual basis, with default rates remaining largely constant. in the commercial real estate market, a rise in insolvencies and weaker demand for office space could have a negative impact. recently, office property prices have risen less sharply than in the preceding years, and retail property prices have actually declined slightly. summary during the pandemic, the financial system has so far fulfilled its key functions. extensive fiscal policy and monetary policy measures have helped avert a looming liquidity crunch in the real economy and protect the financial system. supervisory measures have provided banks with scope for lending : banks should use their capital buffers to absorb losses and continue to supply the economy with credit in an adequate manner. at the same time, they should suspend distributions of dividends. the comprehensive reforms implemented after the global financial crisis are paying off : banks are now better capitalised, have additional capital buffers, and can use them more flexibly. debt levels have risen in the public and private sectors. persistently low interest rates could induce market participants to take on greater risks in a search for yield. we will have to keep an eye on this build - up of risk. after all,

is around 30 % and, to inflation, roughly 20 %. thus, the major part of the impact on inflation is still in the pipeline. nevertheless, inflation in the euro area has receded somewhat over the past few months. but the battle for price stability has not yet been won : in march, the euro area consumer price index rose by 6. 9 %. the recent decline is mainly attributable to lower energy prices and a favourable base effect, which can be explained as follows. energy prices rose sharply in march 2022 as a result of the russian invasion of ukraine. this has so far been reflected in a significantly higher year - on - year inflation rate. by contrast, since march, the higher price level has formed the basis for calculating the inflation rate. and this is reflected in a lower headline rate. according to the latest ecb staff projections, inflation is expected to continue to decrease, but gradually. this also takes into account that the effects of the monetary policy measures have not yet unfolded fully. for this year, the experts forecast inflation to average 5. 3 %. in 2024, they expect 2. 9 % ; and only in the second half of 2025 is inflation projected to return to 2 %. two percent is our medium - term inflation target. the hicp rate excluding energy and food is projected to remain above 2 % until the end of 2025. as a caveat, the projection exercise was finalised before the recent market turmoil. but the latest world economic outlook, released just this week, forecasts the same inflation figures for 2023 and 2024. nevertheless, i believe that risks to price stability are currently tilted to the upside. on that note, it is not a given that we will return to price stability over the medium term. 4 the case for higher rates – and concerns therefore, i do not think that our job is already – or even mostly – done. rather, in my opinion, further interest rate hikes will be required. other critics warn that a further tightening would harm the economy or place too much strain on financial markets. both arguments need to be taken seriously. yet i find neither of them convincing. 4. 1 economic concerns as regards the economy, monetary tightening has so far caused no serious harm in the euro area. 3 / 7 bis - central bankers'speeches of course, it is undeniable that restoring price stability will require aggregate supply and demand to be aligned. and indeed, monetary tightening has been