##s to bank lending and deposit rates appears rather slow, government bond yieldsin malta have already begun to increase. such increases and tighter financing conditions abroad will eventually be reflected in a higher cost of funding for domestic banks, and eventually, households and corporates. it is essential to be reminded that on monetary, financial and economic terms malta is very much integrated with the rest of europe and that the decisions taken in frankfurt ripple across the whole euro area, malta included. 2 / 5 bis - central bankers'speeches the transmission of tighter monetary conditions to the interest rates that banks offer to their customers is necessary for inflation to return to the policy target of 2 % in a timely manner. but it is not sufficient. other policy actors also need to do their part. in particular, fiscal support has to be temporary and targeted, so that it avoids supporting demand for longer than is necessary. it should also be complemented with structural reforms that improve the security of supplies and reduce vulnerability to adverse global conditions and addresses market imperfections that propagate inflationary pressures. let me now turn to financial stability and macroprudential policy. financial stability may well be at its most vulnerable at the cusp of the ongoing shift in monetary policy, coupled with uncertainty on the euro area economic growth path spurred by the energy crisis. in such a regime shift, macroprudential policy has definitely a role to play. financial cycles are notoriously elusive to economists, as we lack a stable standard by which to gauge them. so rather than worrying too much about where we are exactly in the cycle, we should focus more on making sure that the system is adequately equipped to withstand possible shocks. covid - 19 has taught us a few lessons here. as macroprudential authorities, we need to ensure that our banking systems are resilient in the face of risk materialisation, which remains elevated in the euro area. this week, fellow eurozone countries reported that they not only stepped up their macroprudential measures, but are also using combinations of tools from the framework to buttress further the resilience of their financialsystems. management buffers mitigate the risk of procyclical impact on lending, preserving resilience. these are not popular measures in any country. but macroprudential authorities must remain true to their primary objective - to ensure financial stability, just as monetary authorities need to remain loyal to price stability. carving out resilience from within is always less painful than having to build

edward scicluna : pursuing price and financial stability address by prof edward scicluna, governor of the central bank of malta, at the annual dinner of the institute of financial services, saint julian's, 2 december 2022. * * * president and members of the committee of the institute of financial services ( ifs ) malta, distinguished guests, good evening. last year's annual dinner took place at a time economies were gradually re - opening and forecasts for economic growth were being upgraded. policy rates in the main advanced economies were still negative or mildly positive. fiscal stimulus was gradually being withdrawn. the spike in inflation was also expected to go back to moderate levels in the course of 2022. and then came war. apart from the human loss it has caused, the war in ukraine has amplified shortages of certain commodities and unleashed an unprecedented energy shock which has disproportionately affected europe. lately, supply bottlenecks have started to dissipate, as reflected in globalsurveys ofsupplier delivery times and mainstream freight rates. yet, inflation has remained elevated. in the euro area, inflation increased from just above 5 % in january this year, to 10. 6 % in october, moving into two - digit territory for the first time in decades. meanwhile, hicp excluding food and energy, has broadly doubled, standing at 5. 0 % in october, in part reflecting indirect effects from higher energy costs but also the lagged effects of rising non - energy costs. inflation has also remained on an upward trajectory in malta, despite the generous subsidies which kept wholesale and retail fuel and electricity prices at 2019 levels, hitting 7. 4 % in september and remaining at that level in october. still, they are nowhere near the level of prices experienced in most other euro area countries. the assessment of malta's hicp excluding energy is even less encouraging. while since the start of the year, food inflation has been only moderately below that in the euro area, non - energy industrial goods ( neig ) and services inflation have exceeded the corresponding euro area averages. in particular, services inflation in malta averaged 5. 8 % since january, far above the rate of 3. 4 % recorded for the euro area. in part this reflects the higher cost of imported inputs used to generate services, but it also reflects domestic inflation processesthat have been triggered by the strength of demand for services a€ “ the latter in the context of a tight labour market, households '