Inflation will also continue to normalise and we will see headline inflation well above 1% as from next spring. However, considerable risks and uncertainties to financial stability remain. The main risk is related to my initial considerations specifically, to a possible worldwide reversal of risk premia that could induce contagion and affect asset prices.
We have just started to see this in the bond market and this is exacerbated by the present heightened political uncertainty in advanced economies. A second risk regards the challenges to European banks’ profitability resulting from cyclical and structural factors. European banks have steadily increased their robustness and resilience since the financial crisis.