All these effects – lower risk perception and better rating together with ample excess liquidity have dampened the transmission of ECB's monetary policy tightening into local financing conditions. These effects have taken place against fragmented banking and money markets within the euro area, creating preconditions for substantial divergence in financing conditions between Member States. For example, the interest rates for corporate loans in Croatia reached 3.6% in 2023Q1, an increase of about 2 p.p. over the same period last year, while they reached 3.9% in the euro area (YoY increase of 2.6 p.p.) and 4% in Germany (also YoY increase of 2.6 p.p.). In the Czech Republic, Hungary, Poland and Romania, these interest rates reached levels between 9%-13% as a response to a much tighter monetary policy. Czech R.  Hungary  Poland  Romania  2022Q1  5.8  6.3  4.8  5.6  2023Q1  8.7  13.3  8.8  9.5  Likewise, interest rates on housing loans reached 2.9% in 2023Q1 (YoY increase of 0.4 p.p. ), while the same interest rates in the euro area reached 3.3% (YoY increase of 1.9 p.p.) and 3.8% in Germany (YoY increase of 2.3% p.p.). In the Czech Republic, Hungary, Poland and Romania, these interest rates reached levels between 6%-11%. Czech R.  Hungary  Poland  Romania  2022Q1  3.9  4.6  5.8  3.8  2023Q1  6.2  10.7  8.8  7.8  Also, national regulations, consumer protection, national benchmark rates...
Where there is uncertainty about the level of R-star, the scenario shows the advantages of setting policy rates on the one-step-at-a-time basis embodied in difference rules. Policies that attempt to move quickly back to preconceived neutral levels without reference to the real time evolution of the data run the risk of adding noise and volatility through a mis-calibration of the policy response.25  Monetary policy outlook Coming back to last week’s monetary policy announcement, the MPC agreed to continue with a further modest tightening of monetary policy. Placing the specifics of that decision in a longer context, since I joined the MPC in September we have: (1) retired the forward guidance that signalled unchanged policy rates; (2) brought asset purchases to an end; (3) started to raise Bank Rate and continued that process last week; and (4) announced a start to the reduction of asset portfolios accumulated as a result of QE. From a starting point of substantial policy accommodation, this is a consistent, measured and resolute set of actions intended to rebalance the stance of monetary policy and address the inflationary pressures that have emerged. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches  12  We have signalled that more is to come in the coming months if the path sketched out in our February forecast plays out. But equally we have flagged that the outlook for Bank Rate beyond the coming months is uncertain, reflecting the two-sided risks to inflation at the policy-relevant two to three year horizon.