may be more vulnerable to this transition. but, in our view, vulnerabilities in the financial system prevail in the non - bank financial sector, which grew fast and increased its risk - taking during the low interest rate environment. credit and liquidity risk remain high, making the sector more vulnerable to market volatility and an abrupt repricing in financial markets. despite some recent derisking, structural liquidity mismatch prevails in the non - bank financial sector and market corrections could be amplified by forced selling into illiquid markets. it is critical that policy reforms are pursued to address these vulnerabilities. priority should be given to policies that help build resilience in the sector, such as by reducing liquidity mismatch, mitigating risk from leverage, and enhancing liquidity preparedness across a broad range of institutions. 1 bankowski, k. et al. ( 2023 ), " fiscal policy and high inflation ", economic bulletin, issue 1, ecb. 3 / 3 bis - central bankers'speeches

higher as well. member states should also take note of the european commission's fiscal policy guidance for 2024. turning to growth, we moved away from a baseline scenario with a technical recession at the turn of the year, as economic activity proved to be more resilient than expected at the end of 2022. in our march projections, the outlook for growth was revised up, to an average of 1 % in 2023. however, these projections were finalised before the events of the past few weeks, which are now adding uncertainty to our assessments. nevertheless, reduced concerns about energy shortages and price increases, coupled with the continued resilience of the labour market, are expected to support activity over the coming quarters. in short, the growth outlook remains weak, but it has improved somewhat. at the governing council meeting in march, we decided to increase the three key ecb interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our 2 % medium - term target. as part of the monetary policy normalisation process, from the beginning of march, our asset purchase programme portfolio has been declining at a pace of €15 billion per month, on average, and it will continue to decline at this pace until the end of june 2023, while its subsequent pace 2 / 3 bis - central bankers'speeches will be determined overtime. uncertainty has increased, so we are monitoring current market tensions closely and stand ready to respond as necessary to preserve price stability and financial stability in the euro area. but let me go back to financial stability. just a few weeks ago, before tensions in financial markets emerged on both sides of the atlantic, the overall improvement in the outlook for growth and inflation was supporting overly benign macro - financial expectations on the part of banks and financial market participants. despite rising funding costs, bank profitability has improved, driven by significantly higher net interest income while impairments and provisions have been muted so far. overall, from a system - wide perspective, euro area banks are moderately exposed to interest rate risk. most are actually positioned to initially benefit from increasing interest rates, which boost net interest margins. on average, loan book repricing tends to more than offset higher funding costs and mark - to - market losses on fixed income securities. it is inevitable however that, with the tightening of financing conditions and in line with our policy objective, lending dynamics are weakening and may weigh on bank profitability going forward. of course, certain bank business models