Speech by Fabio Panetta, Member of the Executive Board of the ECB, at Bocconi University

Milan, 3 August 2023

In recent years, the euro area has seen multiple supply shocks hitting the economy at the same time. These shocks have combined to create an inflationary shock of such magnitude and persistence that inflation risked becoming entrenched.

These adverse developments coincided with a phase of highly accommodative monetary policy, following a long period of fighting too-low inflation and the risks to price stability associated with the pandemic shock. To avoid exacerbating inflationary pressures by stimulating demand and to prevent the de-anchoring of inflation expectations, we rapidly normalised our monetary policy stance. We increased rates by a total of 425 basis points in the space of just 12 months.

In parallel, the end of net asset purchases and reinvestments under the asset purchase programme (APP), coupled with the repayment of our targeted longer-term refinancing…