_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 20221108 icmb public lecture pierre wunsch – national bank of belgium page 6 of 11 neutral rate is around 2 %, the policy rate will need to be brought slightly above that level to bring inflation back to 2 % within a reasonable timeframe. while this outlook is possible, i believe it to be overly optimistic. on the other hand, if you believe in the regime shift narrative, the situation is potentially more complicated. broadly speaking, there are two types of regime shifts : one related to fundamentals and the other to inflation dynamics. in the former, the supply shocks we are experiencing could have persistent – or even permanent – effects. whether this will be the case depends on known unknowns : a resurgence of the pandemic, spillovers from the war in ukraine on global value chains, a rocky energy transition, deglobalisation and / or unsustainable fiscal trajectories. in the second type of regime shift, inflation could get out of control without a change in fundamentals. this could happen if, for instance, inflation expectations were to de - anchor. de - anchored inflation expectations would most likely require a more forceful policy response, with a greater cost of waiting, in terms of economic activity, reminiscent of the “ volcker shock ” in the 1980s. looking at measures of inflation expectations, as shown on the slide, the evidence leans in favour of expectations remaining anchored, although some risks have started to appear. market - based measures and the ecb ’ s surveys of professionals indicate that long - term inflation expectations are broadly anchored. however, there is some evidence of deanchoring in consumer expectations surveys and tentative signs of de - anchoring in the distributions of market and survey - based measures. 11 the possible de - anchoring of consumer expectations is worrisome because it could trigger a wage - price spiral. if inflation persists, consumers could become more attentive to it, more “ backward looking ” when forming expectations. this is nicely captured in the imf ’ s latest 11 gornicka and meyler ( 2022 ) ; see also reis ( 2021 ) on the ecb ’ s survey of professional forecasters ’ distributions of

short - term liquid and less risky financial assets, it also reflected the relatively low interest rates in the euro area in 2002. overall, however, the excess liquidity was not seen to indicate risks to price stability in an environment of subdued economic activity and moderate credit growth. while some factors pointed to possible upward inflationary pressures at the beginning of 2002, later in the year the worsening outlook for economic activity and the sizeable and protracted appreciation of the euro increasingly pointed towards lower inflationary pressures over the medium term. against this background, the governing council decided to reduce the key ecb interest rates by 50 basis points in december 2002. this was followed in march 2003 by a reduction of 25 basis points and by a further 50 basis point reduction in june 2003. these rate cuts provided some counterweight to the various factors having an adverse effect on economic activity and thereby improved the prospects for price stability in the medium term. with these decisions, the minimum bid rate on the main refinancing operations reached 2 % in june 2003. interest rates in the euro area are now at record low levels by historical standards, both in nominal and real terms. as regards the current outlook for price stability, eurostat ’ s flash estimate of annual hicp inflation in the euro area was 2. 0 % for june 2003. the appreciation of the euro, which has brought exchange rates to levels close to long - term averages and more in line with economic fundamentals, should contribute to keeping inflationary pressures low. in addition, in a context of moderate economic recovery, wage growth is expected to remain compatible with the maintenance of price stability. the strong monetary growth also should not, for the time being, adversely affect the outlook for price stability. while the outlook for price stability has remained broadly unchanged since our last decision on 5 june, the governing council will continue to monitor carefully all factors which are relevant to its assessment. although the outlook for price stability is favourable, having allowed interest rates to fall to historically low levels, monetary policy cannot by itself generate lasting and sustainable growth and employment in the euro area. other policy - makers also have to take up their responsibilities. part of the weakness in economic growth in the euro area can be linked to a lack of ambition in the areas of both fiscal and structural reforms to further improve the conditions for investment and employment in the euro area. i probably cannot emphasise sufficiently the need to speed up the pace of structural reforms in the labour and product markets, given their positive impact