##5. the european economy is achieving a soft landing, but a take - off is not yet in sight. hence we will continue cutting rates, but let me try to put some lights on the way forward. which communication about the direction of the journey? communication about future policy is sometimes viewed as binary, while, in practice, it belongs to a continuum ranging from full commitment to total silence. on one end of the spectrum, forward guidance worked rather well in the lowflation period. however, past experience tells us that central bankers should not be unconditionally pre - committed, at least beyond a few quarters. on shorter horizons, date - contingent forward guidance might still be validiii. on longer horizons, if needed, 1 / 5 bis - central bankers'speeches state - dependent ( and hence more humble ) forward guidance would be more appropriate. on the other end of the spectrum, the central bank can give no indications whatsoever. with the recent inflation surge, the ecb shifted to a meeting - by - meeting and datadriven approach, an evolution warranted by high uncertainty and inflation forecast instability. this is still where our last monetary policy statement is, but now that we are getting back to a more " normal " inflation regime, our communication could become more " forward - looking ". between these two ends of the spectrum, soft signaling could hence be now our appropriate communication mode. by making clearer its reaction function, the central bank can usefully influence market expectations of future policy. when christine lagarde said iv " the direction of travel is clear and what we have done starting in june is the sensible approach and should be continued ", this is a good example of soft signaling. i believe that we could now adapt our language in this direction. till which destination? on our terminal rate, it is obviously too early to tell. however as we should be in the near future sustainably at 2 % inflation, and with still a sluggish growth outlook in europe, there won't be any reasons in my view for our monetary policy to remain restrictive : our interest rates should clearly go to the neutral rate r *. however, this raises two questions : where is precisely r *? we don't know with enough certainty but most estimates from the ecb and the banque de france give a reasonable confidence range between 2 % and 2. 5 %. in other words, at 3. 25 % we still have a significant room to remove the restrictive stance of

repo rates for transactions using specific collateral – which are driven by the need to source a specific security – have increased by slightly less than 50 basis points as collateral scarcity has implied some downward pressure on these rates. this collateral scarcity is reflected in persistent negative spreads of some short - term repo rates to €str, which is particularly pronounced for the nongeneral collateral ( non - gc ) rates ( chart 2 ). chart 2 average spread of short - term repo rates to €str over 2022 ( basis points ) sources : brokertec / mts and ecb calculations. notes : gc refers to general collateral and cash - driven repo transactions. non - gc refers to non - general collateral and collateral - driven repo transactions. the chart displays the average spread of the respective repo rate to the €str since the beginning of 2022. the latest observations are for 13 september 2022. moreover, there has been a widening of the spread between short - term government bill rates and swaps with the same maturity ( chart 1 ). this can be mainly attributed to demand / supply imbalances in the market for short - term government bills, which is partially driven by the level of excess liquidity and increased demand for short - term high - quality assets. this increased demand is also motivated by the current interest rate uncertainty and high level of volatility. these demand / supply imbalances of highquality collateral with short - term maturities can also be observed in other jurisdictions of major central banks for similar reasons. the increase of the dfr by 75 basis points to 0. 75 per cent that we decided last week will only become effective with the start of the new maintenance period today. to preserve the effective transmission of last week ’ s rate hike by 75 basis points and safeguard the orderly functioning of money markets, the governing council also decided last week to temporarily remove the zero per cent interest rate ceiling for remunerating government deposits held with the eurosystem. until 30 april 2023, the remuneration ceiling government deposits will remain at the €str or the dfr, whichever is lower. this temporary adjustment was in recognition that the faster than initially expected pace of monetary policy normalisation gave only little time for government deposit holders to adjust and plan for alternative arrangements. the temporary adjustment allows the remuneration of government deposits to follow money market rates, which reduces the risk of an abrupt outflow of these deposits