##mic was inflicting on the economy, economic slack was expected to weigh on price pressures for a considerable period of time. further decisive monetary policy support was needed to offset the effect of the pandemic on the projected path of inflation, in line with our mandate. the question facing the ecb ’ s governing council at its meeting on 10 december 2020 was how to best provide this support. our policy response needed to take two factors into account. one was that the unprecedented fiscal and monetary policy support had succeeded in delivering highly favourable financing conditions. the nominal euro area gdp - weighted yield curve stood at its lowest ever recorded level ( left chart, slide 2 ). yields up to a maturity of ten years were in deep negative territory. 1 / 6 bis central bankers'speeches real long - term expected risk - free interest rates stood at around – 1. 5 %, close to the lowest level ever recorded in the euro area ( right chart, slide 2 ). bank lending rates, which are the rates that matter most for households and small and medium - sized enterprises, were also at historical lows. the other factor was that large uncertainty, risk aversion and wide - ranging mobility restrictions meant that a significant part of the economy was unlikely to be able, or willing, to take advantage of these financing conditions in the near term, delaying the effect of monetary accommodation on aggregate demand. surveys suggested that a large share of households did not plan to make major purchases over the next 12 months ( left chart, slide 3 ). their savings intentions remained at historically high levels as uncertainty continued to weigh on sentiment and consumption opportunities remained restricted amid renewed containment measures ( right chart, slide 3 ). in other words, there was a substantial degree of monetary accommodation that, if preserved, could be expected to provide a measurable boost to aggregate demand and underlying price pressures. the governing council responded to these conditions with a powerful commitment to preserve favourable financing conditions. what distinguishes a policy of preserving favourable financing conditions? two main characteristics distinguish this policy from the way asset purchases had been conducted before. the first is a departure from a policy that attempts to push interest rates even lower. the effectiveness of monetary policy is highly state - contingent. the benefits from reducing interest rates further from very low levels may still outweigh the costs in certain circumstances. and since we are not yet at the effective lower bound, such actions remain possible in the future. but when uncertainty is large and private demand constrained, monetary policy is like “

cost. to see this more clearly, it is useful to look at current estimates of the real interest rate gap. until a few years ago, policymakers mostly focused on the real short - term interest rate gap. but this exclusive focus is no longer appropriate in a world where central banks increasingly try to influence long - term interest rates through forward guidance and asset purchases. the real longterm interest rate gap has become equally important over time. although there is considerable uncertainty regarding real equilibrium rates, let alone their term structure, ecb staff estimates suggest that the gap between the actual real ten - year rate and the estimated real ten - year equilibrium rate is likely to be highly significant, even when accounting for model uncertainty ( left chart, slide 6 ). monetary policy has thus managed to remain highly accommodative despite the steady decline in equilibrium rates over time ( right chart, slide 6 ). [ 7 ] a policy that commits to preserving such a degree of accommodation provides measurable support to aggregate demand and hence underlying price pressure. there are, however, instances where rising rates would unduly tighten our policy stance. for example, a rise in the real term premium – that is, the compensation that investors demand for risks related to the future path of real short - term interest rates – could signal growing uncertainty around the monetary policy outlook or indigestion of duration supply. a rising real term premium was the main reason behind the sharp uptick in bond yields seen during the 2013 taper tantrum in the united states and in march last year ( left and middle panel, slide 7 ). these types of movement, if sizeable and persistent, make financing conditions less favourable as they are not accompanied by a corresponding increase in real equilibrium rates. this channel seems to have played less of a role in recent weeks ( right panel, slide 7 ) but we are conscious of the fact that it may well affect financing conditions in the current environment. the reason for this is that protecting society from the appalling consequences of the pandemic will require continued strong fiscal support, and hence high net public debt issuance, resulting in an increase in duration risk to be absorbed by markets ( left chart, slide 8 ). this could put unwarranted upward pressure on the real term premium over the period of net asset purchases ( right chart, slide 8 ). a firm commitment to favourable financing conditions therefore requires a certain minimum purchase volume to offset this effect on real interest rates. rising rates are