Inflation has come down in recent months, but we have yet to see a generalized decline in price pressures. Second, and related, the economy is still in excess demand-it's overheated. Job vacancies have declined from their peak but remain high, and businesses continue to report widespread labour shortages. Third, higher interest rates are beginning to weigh on growth.
We have responded to the fall in equilibrium rates and the negative output gap by cutting our main refinancing rate to zero and our deposit rate into negative territory. Our targeted long-term refinancing operations have encouraged lending by banks and helped to mend the transmission mechanism. More recently, our asset purchase programme (APP) has sought to influence a broader range of interest rates.