A recent ECB staff paper shows that, in a scenario where r* falls from 2 percent to zero, the incidence of hitting the zero bound almost doubles. [8] Lower real rates reduce the available policy space to counter low inflation.
We will continue to use all the tools at our disposal to improve market functioning and liquidity, to reduce pressures in key credit and funding markets, and to complement the steps the Treasury and foreign governments will be taking to strengthen the financial system.