##bilising medium - term inflation expectations and potentially spiralling into outright deflation. that intention was hard - wired in the conditionality – or, in academic parlance, the “ policy rule ” – that governed the forward guidance on the evolution of the app from its inception. the programme was to continue at a pre - set monthly pace of purchases until the governing council saw inflation on a sustained adjustment path towards levels below, but close to, 2 % over the medium term. we ’ ve come a very long way since the app was launched. last december, we took a first step on the path towards “ normalisation ” by completing the rotation of instruments from a configuration relying on the pace and horizon of monthly bond purchases to one founded on forward guidance on our policy interest rates as the principal instrument of monetary policy. there is an important distinction to be made here between the normalisation of the hierarchy of policy instruments and the normalisation of the monetary policy stance – that is, the degree of monetary stimulus that we provide to the economy. the normalisation of instruments was implemented in such a way as to preserve the degree of accommodation necessary for continued inflation convergence even after the end of net asset purchases. rotation back to the “ normal ” instrument of monetary policy 1 / 5 bis central bankers'speeches when announcing our app in january 2015, we made clear that we intended to conduct net asset purchases until we saw inflation on a sustained adjustment path towards levels below, but close to, 2 % over the medium term. while further accommodation was initially provided by additional cuts in policy rates into negative territory, the app became the tool for adjusting the level of monetary accommodation. in march 2016 we adjusted our forward guidance on the key ecb interest rates to imply a sequencing between the interest rate policy and the net asset purchases, thereby exploiting the complementarities between these two key components of our monetary policy conduct. the app enhanced the effectiveness of our forward guidance on policy rates via the signalling channel, underscoring our commitment to keep rates low for as long as necessary to achieve the stated objective of our policy. 4 in addition, the app gave rise to a portfolio rebalancing channel ; this put downward pressure on longer - term interest rates, thereby complementing the impact of forward guidance on short to medium - term interest rates. the app, as well as the tltros, also resulted in a liquidity creation effect. 5 in conjunction with our negative interest rate policy, which increased the opportunity cost of holding

- free interest rates – is already negative. so, under current conditions, our indications regarding the most likely evolution of the policy rates are a key instrument for setting the monetary policy stance. our interest rate forward guidance consists of both date and state - contingent legs. the statecontingent leg expresses the anchor of our policy - setting : keeping inflation stably on its sustained path towards levels that are below, but close to, 2 % over the medium term. it says that the policy rates won ’ t be raised until we are sufficiently confident that inflation will reach levels below, but close to, 2 % over the medium term. we further define our forward guidance with additional wording which we refer to as the datebased leg. through that wording the governing council relays to the market information about its expectation of the earliest date at which, given the likeliest path for inflation, the state - contingent part might dictate a first rate increase. as such, it is not a stand - alone proposition. it is a clarification about the rate path that we see as most consistent with the inflation outlook that we face, and with our commitment to achieve our policy objective over the medium term. the datebased leg of our forward guidance directly affects the formation of market expectations by clarifying the course of interest rate policy over a well - defined period of time. it influences the riskfree curve by truncating the left tail of the distribution of market expectations for policy rates. in the run - up to our march meeting, the state - contingent part of our forward guidance with its link to the evolving inflation outlook had already influenced investor expectations a great deal. as investors had been revising their outlook, the point at which they expected a first rate increase had also been extending dynamically into the future, as they were internalising the governing council ’ s commitment – expressed in the state - contingent part of forward guidance – to an 3 / 5 bis central bankers'speeches inflation - dependent “ policy rule ”. the term structure of money market interest rates had been shifting lower and flattening as a result. so, a gap had formed between the market - implied date of a rate lift - off and the governing council ’ s indications, under its time - bound component of forward guidance, of the earliest date at which such a lift - off was likely to occur. since june 2018 this time - bound part of forward guidance had signalled that policy rates were very likely to remain at