or a stepby - step approach is appropriate given the surrounding high uncertainty and the supply - side nature of inflation. let me now turn to a very important pledge we have made at the governing council, ever since we first embarked on the gradual process of policy normalization : any resurgent fragmentation risks that would undermine the smooth transmission of the normalisation of our monetary policy across all countries in the euro area must be forcefully confronted. this summer, the governing council acted forcefully on this pledge. in june, it applied flexibility in reinvesting redemptions coming due under the pandemic emergency purchase programme ( pepp ), with a view to maintain the functioning of the monetary policy transmission mechanism. this is a first line of defense to counter risks to the transmission mechanism related to the pandemic. in july, the governing council introduced the transmission protection instrument ( tpi ). the tpi is a very powerful tool that will support the effective transmission of the ecb ’ s single monetary policy across all countries of the euro area as monetary policy is normalised. the euro area has been at the epicenter of strong and successive fragmentation episodes. a major reason for that is in my view that our monetary union is incomplete. in the absence of a complete banking, capital markets and fiscal union, we would have faced a distinct possibility of further fragmentation episodes in the future if we had not adopted the tpi. to conclude, we remain determined at the governing council, to eradicate the hydra - headed monster of high inflation, without leaving unattended risks to the transmission of our single monetary policy, to financial stability and to economic activity. short concluding remarks let me conclude with the following remarks. monetary policy can be a powerful tool to maintain price stability if the shocks hitting the economy are from the demand side. during the past few years, the euro area has been hit by a series of shocks. the governing council has determined that the shocks, especially for the euro area, have predominantly come from the supply side of the economy. like the hydra monster, these supply - side shocks have been multi - headed. we have navigated the rough seas of high inflation with the needle of our compass on our mediumterm objective – an inflation rate of 2 per cent. to help us navigate these rough seas, we have kept a close eye on inflation expectations. throughout the storm, inflation expectations have remained close to our 2 per cent objective. we have formulated policy in such a way that will minimize the output and

john mourmouras : divergent monetary policies and global capital markets speech by professor john mourmouras, deputy governor of the bank of greece, at the session “ the role of central banks today ” of the xxiv international banking congress, st. petersburg, 4 june 2015. * * * governors, ladies and gentlemen, it is a great pleasure for me to be here in st. petersburg and i would like to thank the governor of the bank of russia, elvira nabiullina, for inviting me to this international congress attended by distinguished representatives of the finance industry and the central banking sector. i would like to make a few remarks on the potential financial consequences of divergent monetary policies, which remain a dominant theme in the global financial environment. afterwards, i will be happy to answer any questions posed by the panel or the floor. 1. introduction global growth and inflation prospects, while not as dire as a few months ago, are far from robust. notwithstanding the slow steps by the federal reserve ( fed ) towards normalisation of monetary policy in the us, the central bank community today remains ultra - loose, with the certainty of further stimulus in europe and japan in the months ahead and the likelihood of monetary easing in china and elsewhere. the greek debt crisis still remains pending and there are also downside risks on the geopolitical front, even in this region ( e. g. the events in ukraine, particularly with the minsk ii ceasefire under increasing strain ). several central banks ( including all four major, i. e. the us federal reserve, the ecb, the bank of england and the bank of japan ) have engaged in unconventional monetary policies, including largescale asset purchase programmes, and forward guidance about the future path of monetary policy. we have also lately witnessed discretionary policy actions by an increasing number of central banks with direct effects on the foreign exchange value of their currencies, naturally raising concerns about a recourse to beggar - thy - neighbour policies and competitive devaluations. the consensus among analysts is that a period of divergent monetary policies among central banks will last for quite some time, giving rise to a number of important questions to be addressed, to mention but two : ( a ) what are the effects and the channels of the international transmission of monetary policy today, ( b ) what are the spillovers from the policies of major central banks to the rest of the world, including emerging markets, in terms of capital flows, bond