. recalibrating the programme's conditions ensures consistency with the broader monetary policy normalisation process. we are already seeing the impact of our policy decisions on financial and monetary conditions, which will support their transmission to real activity and inflation with the usual lags. bank funding costs are increasing with market interest rates as monetary policy normalisation continues. the cost of borrowing for firms and households is also clearly rising. so far, bank lending to firms remains robust, reflecting the need to finance high production costs, working capital and inventories. but mortgage lending to households is already moderating because of tighter credit standards and decreased demand. according to our most recent bank lending survey, credit standards tightened substantially in the third quarter of the year, as banks are becoming more concerned about the deteriorating macroeconomic outlook in the current uncertain environment as inflation remains high and growth slows. financial stability our financial stability assessment has also changed considerably compared to one year ago. in our financial stability review of november 2021, we underlined the impact of 2 / 4 bis - central bankers'speeches improved economic conditions in reducing risks to financial stability. since then, the outlook for financial stability has been downgraded twice : in our financial stability review of may 2022, and the one to be published this week, which sets out how deteriorating economic and financial conditions have further increased risks to the stability of the euro area financial system. the russian invasion of ukraine triggered a substantial correction in the market prices of financial assets. so far, this repricing has generally been orderly, but market volatility increased, leading to knock - on effects for margins and liquidity. asset valuations remain sensitive to the uncertain path of inflation, to monetary policy normalisation and to economic activity. repricing risks and liquidity difficulties render financial markets and non - bank financial institutions vulnerable to disorderly risk adjustments. investment funds'liquid asset holdings remain low and could thus amplify a market correction in a forced selling scenario. since last year, rising rates reduced by around 4 % the value of insurance companies and pension funds'bond portfolios. this points to risks from further valuation losses, especially for leveraged and liquidity - constrained institutions. higher interest rates are supporting euro area banks'profitability, with interest margins improving. bank profitability has in fact steadily strengthened throughout 2022 mainly due to lower operating expenses and higher operating income. the outlook is, however, clouded by a weaker macroeconomic backdrop which is not yet reflected in loan loss

, in other words – is very low, a view shared by the vast majority of the governing council members. there are, at least, no visible signs of especially low wage settlements, either in germany or the other large euro - area countries. negotiated wages are likely to rise by around 3 % in germany this year ; the increase just agreed for germany ’ s metal - working industry is around that size. and even in spain, where inflation rates are negative, the commission is expecting wages to rise by 0. 7 % in 2015. as for the spectre of debt deflation, there are currently no signs in any of the crisis countries other than greece that low inflation is hampering deleveraging in the non - financial sector. the primary reason why debt ratios in these countries are rising is that increased public borrowing is overshadowing the partial deleveraging that has occurred in the non - financial private sector. when assessing the monetary policy situation, of course, it is also important to look at the cause of the low inflation rates. plummeting energy prices are one of the main factors. but bis central bankers ’ speeches this slump is likely to be fairly short - lived. and although falling energy prices are slowing down inflation, they are also boosting consumers ’ purchasing power and cutting enterprises ’ costs. falling oil prices are therefore having the effect of a small stimulus package. this assessment is also reflected in the ecb staff macroeconomic projections published last thursday. while the ecb staff lowered the projection for this year ’ s inflation rate, they made perceptible upward revisions to the growth outlook for this year and next. inflation is now expected to return to the desired range of “ below, but close to, 2 % ” in 2017. another point to consider is that purchases of euro - area government bonds are not “ just another ” instrument. as the founding fathers of our monetary union were well aware, in a monetary union with a single monetary policy but continuing national sovereignty over fiscal policy, the easier it is to pass on the fallout of unsound budgetary policy to other member states or to the eurosystem, the stronger the inherent incentive for countries to run up debt. that is why the eu treaties forbid the eurosystem from purchasing bonds directly from member states or giving them loans. now the eurosystem is buying government bonds not on the primary market but on the secondary market. that is not prohibited. still, these purchases will make the eurosystem the