Second, it is true that we have seen significant improvements in market access and funding costs during recent months. However, signs of fragmentation between the so-called periphery and other countries of the euro area are still evident. That is, financing conditions for sovereigns, banks and corporates continue to diverge along national borders.
While the pass through from the weaker exchange rate into generalised inflation has been more muted than in previous episodes of depreciation, there is evidence of second round effects and the Bank has expressed its concern about rising salary expectations and a wage-price spiral. The Bank raised interest rates by 50 basis points in January this year and by 25 basis points in July.