We have also announced that the Eurosystem will no longer reinvest all of the principal payments from maturing securities in the asset purchase programme (APP). We judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our 2% medium-term target.
Frictions and rationality Institutional details and frictions, both on the side of market participants and regulatory institutions, have an impact which is difficult to detect in normal periods. Interbank markets, for instance, used to be seen by academics as a somewhat dull topic before the crisis, so that little was known about their functioning.