christine lagarde : welcome address - ecb conference on monetary policy welcome address by ms christine lagarde, president of the european central bank, at the european central bank conference on monetary policy : bridging science and practice, frankfurt am main, 4 october 2023. * * * it is my pleasure to welcome you all to the 2023 ecb conference on monetary policy. the last few years have been an incredibly challenging time for monetary policymakers around the world. we have faced a succession of overlapping supply and demand shocks that have created a complex and fast - changing macroeconomic landscape. and as a result, we have seen a paradigm shift in monetary policymaking. where central banks in advanced economies once wrestled with overcoming the lower bound on interest rates, they have more recently been engaging in the fastest hiking cycle on record. but policymaking, by nature, operates in real time. we make decisions based on the best analysis and data at hand. however, it is exactly when rapid shifts in the macroeconomic environment occur that prior, unforeseen knowledge gaps are suddenly exposed. this is why policymakers – who are practitioners at heart – can benefit greatly from cutting - edge research. fresh insights and innovative approaches can go a long way in closing those knowledge gaps, helping policymakers to navigate this new terrain more effectively. that is why this conference is called " bridging science and practice " – because the issues we are discussing are truly those that are informing our policymaking. today's event captures four such topics. the first topic is how the transition from the low inflation regime, which prevailed before the pandemic, to the high inflation rates we are seeing today affected the pass - through of shocks. the papers to be presented over the next two days provide important contributions to that important debate. in particular, we will see evidence that the propagation of adverse supply shocks is nonlinear : when inflation is high, the propagation is stronger. and we will see how firms'pricing strategies can become state - dependent and make prices more flexible in response to large shocks. 1 / 3 bis - central bankers'speeches the second topic on which the conference focuses follows naturally from the first. with such a rapid shift in the inflation outlook, there has been an equally rapid shift in the stance of monetary policy. and this has raised questions about how best to calibrate policy when accommodation must be quickly withdrawn after a long phase of loosening. we will see research that highlights some of the challenges

deposits and credit to the private sector continued to expand rapidly. a protracted monetary expansion was thus evident. at the same time, the external environment strengthened as the asian economies stabilised and then started to recover, while concerns for financial crises in other emerging markets receded. in this environment, economic activity in the euro area progressively recovered. in addition, the effective exchange rate of the euro weakened further and oil prices continued to rise. these two factors were gradually feeding through to consumer prices. therefore, information contained in both pillars provided evidence that the balance of risks to future price stability had been progressively moving upward since the beginning of the summer. the downside risks which were present at the time of the cut in ecb interest rates in april no longer prevailed. on 4 november the governing council decided to raise the interest rates on the main refinancing operations by 50 basis points to 3 %. the increase in interest rates at that point in time was aimed at helping to counter the upward pressure on future prices and at contributing to keeping inflation expectations safely below 2 %. the interest rate decision was taken in a timely manner so as to avoid the need for stronger measures later. this is consistent with the focus on maintaining price stability and would thus contribute to sustaining non - inflationary economic growth in the euro area over the medium term. in late 1999 and by 2000 risks to price stability moved again to the upside. both pillars were indicating increased risks to price stability. considering the first pillar of the monetary policy strategy, monetary and credit growth continued to signal generous liquidity conditions. monetary expansion remained high as evidenced by the latest three - month average of annual m3 growth of 6. 1 % for the period covering october to december 1999. the expansion of credit to the private sector continued to be strong with rates around 10 %. these developments were indicative of a continuation of a generous liquidity situation. as for the second pillar of the monetary policy strategy, the oil price and exchange rate movements observed in late 1999 and january 2000 have added to upward pressure on prices in the euro area. in fact, price and cost increases were larger and more protracted than foreseen earlier and hence indicated renewed upward risks for price stability. the latest price developments for the euro area were reflecting this pattern, given a pick - up in the hicp inflation rate to 1. 7 % for december 1999. adding to these risks was the fact that the international environment has been showing continuous signs of improvement and the prospects of a cyclical ups