profits increase by more than expected. upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected. by contrast, inflation may surprise on the downside if low confidence and concerns about geopolitical events prevent consumption and investment from recovering as fast as expected, if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly. greater friction in global trade would make the euro area inflation outlook more uncertain. financial and monetary conditions market interest rates in the euro area have declined further since our october meeting, reflecting the perceived worsening of the economic outlook. although financing conditions remain restrictive, our interest rate cuts are gradually making it less expensive for firms and households to borrow. the average interest rate on new loans to firms was 4. 7 per cent in october, more than half a percentage point below its peak a year earlier. the cost of issuing market - based debt has fallen by more than a percentage point since its peak. the average rate on new mortgages, at 3. 6 per cent in october, is about half a percentage point lower than at its highest point in 2023, even though the average rate on the outstanding stock of mortgages is still set to rise. 3 / 4 bis - central bankers'speeches bank lending to firms has gradually picked up from low levels, and increased by 1. 2 per cent in october compared with a year earlier. debt securities issued by firms were up 3. 1 % in annual terms, which was similar to the increase in the previous few months. mortgage lending continued to rise gradually in october, with an annual growth rate of 0. 8 per cent. in line with our monetary policy strategy, the governing council thoroughly assessed the links between monetary policy and financial stability. euro area banks remain resilient and there are few signs of financial market stress. financial stability risks nonetheless remain elevated. macroprudential policy remains the first line of defence against the build - up of financial vulnerabilities, enhancing resilience and preserving macroprudential space. conclusion the governing council today decided to lower the three key ecb interest rates by 25 basis points. in particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based

authorities in this area and the need for strengthened governance structures. financial contagion and public policy since the writings of walter bagehot financial contagion has become an issue that is discussed widely in policy, market and academic research circles. 2 taking a broad w. bagehot ( 1873 ), lombard street – a description of the money market, pp. 129ff. emphases by the speaker. see, for example, the following surveys on the issue : g. kaufman ( 1994 ), “ bank contagion : a review of the theory and evidence ”, journal of financial services research, 7 ; e. p. davis ( 1995 ), debt, financial fragility and systemic risk, clarendon press, 2nd ed. ; o. de bandt and p. hartmann ( 2000 ), “ systemic risk : a survey ”, ecb working paper, no. 35, november ; s. claessens and k. forbes ( eds., 2001 ), international financial contagion, kluwer academic publishers ; ecb ( 2005 ), “ financial market contagion ”, financial stability review, december ; ecb ( 2009 ), “ the concept of systemic risk ”, financial stability review, bis central bankers ’ speeches perspective embracing different views and studies, contagion could be defined as a situation in which instability in a specific financial market, institution or country is transmitted to one or several other markets, institutions or countries. a first characteristic of contagion is that the spread of instability would usually not happen without an initial trigger event – which often appears to be a relatively contained event. a second characteristic is that the transmission of instability is in some way abnormal, for example, in terms of its speed, strength or scope. though spillovers are to be expected in an interconnected financial system, contagion is distinct in that it often reflects a market failure and a dangerously amplified transmission of instability. the underlying market failure consists of the fact that contagion often involves externalities. 3 as a result, the private costs of the initial financial market failure, that is the costs to the actor triggering contagion, are lower than the social costs. in the specific case of the sovereign debt crisis in europe, the trigger could, for example, be that a country in a precarious fiscal situation does not seriously implement the necessary fiscal consolidation measures. this could lead interest rates on this particular country ’ s government debt to rise