One fundamental reason relates to the zero lower bound on nominal interest rates. The nearer the target inflation rate is to zero, the greater the risk that central banks might be unable to react sufficiently to deflationary shocks by reducing interest rates. If the shock were severe  2  See ECB, 1998. 3  See Issing, Gaspar, Angeloni and Tristani, 2001.
Banking supervisors around the world are working to bolster the resilience of the financial system. It is my strong belief that Portugal is in the front line of these efforts. It is also my conviction that Banco de Portugal is today much better equipped “to see both the forest and the trees”, and to act decisively if a fire should start. Thank you.