domestic demand is expected to remain the key driver of euro area growth. at the same time, uncertainties related to protectionism, financial market volatility and vulnerabilities in emerging markets have overall weighed on business confidence and contributed to weaker external demand. the underlying strength of the euro area economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed. euro area annual hicp inflation has continued to increase, and preliminary estimates put it at 2. 2 % in october 2018, mainly reflecting higher energy price inflation. on the basis of current futures prices for oil, headline inflation is likely to hover around current levels in coming months. while measures of underlying inflation remain generally muted, they have been increasing from earlier lows, amid high levels of capacity utilisation and tightening labour markets. looking ahead, underlying inflation is expected 5 / 11 bis central bankers'speeches to increase further over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth. overall, though, significant monetary policy stimulus is still needed to support the build - up of domestic price pressures and headline inflation developments over the medium term. the rotation from the asset purchase programme to forward guidance on rates at our june monetary policy meeting, we initiated a rotation of our policy instruments from the asset purchase programme ( app ) towards more conventional instruments of monetary policy – the policy interest rates and forward guidance on their likely future evolution. we expressed our anticipation of a gradual winding - down of net asset purchases, subject to incoming data confirming our outlook for inflation. and we updated and enhanced our forward guidance on the path for interest rates, which is now expressed in terms of the expectation that key ecb interest rates will remain at their present levels “ at least through the summer of 2019 and, in any case, for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 % over the medium term ”. in addition, we re - affirmed our intention to reinvest principal payments from maturing securities purchased under the app “ for an extended period of time after the end of our net asset purchases and, in any case, for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation ”. this combination of policy measures aimed to preserve the degree of monetary accommodation that is necessary to ensure sustained convergence of inflation towards our aim. clearly, the end of net asset purchases is not tantamount to a

peter praet : preserving monetary accommodation in times of normalisation speech by mr peter praet, member of the executive board of the european central bank, at the ubs conference, london, 13 november 2018. * * * introduction in the aftermath of the global financial crisis, central banks have successfully fended off deflationary forces and supported economic recovery. they have brought down policy rates to their effective lower bound and, importantly, have made use of a broad set of unconventional monetary policy measures in pursuit of their statutory objectives. in advanced economies, monetary policies have borne fruit, but their monetary policy cycles clearly differ substantially, reflecting different stages of recovery and degrees of progress towards achieving the central bank ’ s statutory objectives. in a number of places, central banks have already tightened their monetary policy stance ; unconventional monetary policy measures have been wound down and policy rates have been gradually increased. in the euro area, however, significant monetary policy stimulus is still needed to support the further build - up of inflationary pressures and headline inflation developments over the medium term. at the meeting of the ecb ’ s governing council in june, we gave an important signal of a normalisation of our policy instruments. we communicated our anticipation that, subject to incoming data confirming our medium term inflation, we would end net purchases under our asset purchase programme ( app ) after december 2018. today i would like to address our key challenge in normalising our monetary policy instruments : preserving monetary accommodation while switching back from net asset purchases to forward guidance on policy rates as the main instrument to steer our monetary policy stance. while this rotation proceeds, we will continue to operate with multiple, complementary instruments, including our policy of reinvesting the principal payment of securities purchased under the app. the state of the euro area economy following more than five years of increasingly broad - based economic expansion in the euro area, recent developments point to some slowdown in the pace of economic growth. preliminary data show that euro area real gdp expanded by 1. 7 % year on year in the third quarter of 2018, down from 2. 2 % in the second quarter. the slowdown in euro area economic growth since the start of the year primarily reflects a loss of momentum in global activity, amid heightened policy uncertainty and tighter financial conditions globally. while some retreat from the strong growth of 2017 was to be expected, it was compounded by short - term country - specific or sector - specific factors in the euro area. euro area domestic demand has however remained resili