led to successive upward revisions to projected inflation, including the medium - term projections. in tandem, second - round effects via wages or mark - ups have been moderate, but the greater persistence of inflation has increased the risks of a deanchoring of medium - term inflation expectations. against this backdrop, the ecb's response has been to tighten monetary policy, combining gradualism and forcefulness in an effort to keep inflation expectations anchored. the normalisation of our monetary policy began in late 2021 with the announcement that net asset purchases would cease by the end of the first half of 2022. subsequently, we have raised the deposit facility rate to 2 %, a cumulative increase of 250 basis points ( bp ), the fastest in the euro's history. we have also created the new transmission protection instrument to ensure the smooth transmission of monetary policy across the euro area. we have amended the conditions of the longer - term refinancing operations, with the specific aim of strengthening the transmission of interest rate increases. and we have announced our intention to stop reinvesting, from early march 2023, all the principal payments from maturing securities under our asset purchase programme, which will give rise to a gradual and predictable reduction in the size of the portfolio. overall, this monetary policy normalisation process has already translated into a significant increase in market interest rates. but what can we expect in the future? at the last governing council meeting we stated that interest rates would still have to rise significantly at a steady pace to reach levels that ensure that inflation will return to its target. as i mentioned earlier, the latest ecb projections forecast inflation of 2. 3 % ( i. e. above the 2 % target ) in 2025. those projections were based on the market expectations for the future path of interest rates when they were prepared. deeming the projections valid, interest rates would therefore need to rise more than the markets expected when they were prepared in order for inflation to return to its target. since the last ecb governing council meeting the maximum interest rate level expected by the market has actually increased by roughly 25 bp, to around 3. 4 %. we 4 / 8 bis - central bankers'speeches must bear in mind, however, that these market rates incorporate a positive term premium. accordingly, the genuine market expectations for the maximum deposit facility rate would be somewhat lower than this figure. in any event, i would like to once again underscore the importance of considering the current setting's extraordinary

the pre - covid pattern of lower trend growth will bring its own challenges, and there is a strong argument for not accepting this state of affairs as either inevitable or acceptable. stronger growth in potential supply supported by stronger investment and productivity growth will make the covid recovery easier. the covid shock has required an increase in public and business debt to smooth the impact. this is a necessary and sensible response. but that cost has to be managed, and it will be easier to do that with a higher trend rate of growth, boosted by stronger investment. although business investment recovered from a low base following the financial crisis, it was weak in the period prior to covid. improvements in automation appear to have led to only modest gains in productivity and output. might this be a reflection of the rather larger share of high labour input service industries in the uk and a lower share of manufacturing? not really, because the pattern appears to hold at a sectoral level as well. this evidence points to the importance of raising productivity growth, supported by investment, in order to make it easier to handle the debt legacy of covid and offer some protection against the risk that the decline in the labour supply during the pandemic proves more persistent. there is an interesting issue of whether such a change is already under way as part of the immediate response to covid. online retailing is an example of a sector where the impact has 4 / 5 bis central bankers'speeches included higher productivity and investment to support the more digital service. over the pandemic period, investment in intellectual property products ( which includes things like investment in software and research and development ) has held up better than other types of investment, particularly compared with investment in commercial buildings and transport equipment. this supports the idea that a move to digital is underway. it is too soon to tell to what extent changes seen over the last year or so will persist and further expand. but i think it is fair to say that more investment to support growth will be needed and that is why the bank, treasury and fca have emphasised working with the financial sector to ensure the supply of productive finance to support investment is available. let me conclude with a reflection on monetary policy. the economy is bouncing back rapidly, which is good news. with that has come a rise in inflation, and we expect that rise to continue in the near term as we go through the rest of this year, such that cpi inflation is expected to pick up further above the target, owing primarily