Otherwise, it will threaten people’s well-being. Last year, we cut the key rate — at the outbreak of the pandemic, inflation was low in Russia, and the key rate helped us support lending and demand. As we all know, companies tend to welcome a policy of low interest rates, which makes borrowings cheaper and thus helps them develop their business. Conversely, it reduces households’ demand for deposits. If this is also coupled with inflation, households’ real incomes decline and savings depreciate. Figuratively speaking, we can say that monetary policy is like seasonal clothing: we wear jackets when it is cold and hang up our dresses in the wardrobe until the next warm season. The same is true for monetary policy: it significantly influences the situation in the economy and current 3/5  BIS central bankers' speeches  developments and helps promote stability, just like adequate clothing keeps us warm without being too hot. Accordingly, now is the right moment to raise the key rate in response to the changed environment and higher inflation. We had been keeping the key rate at a low level for quite a long period in order to make sure we do not clip the wings of the recovering economy. However, now we have no doubt that our decisions have not hindered growth. The economy has bounced back to its pre-crisis level, even surpassing it in many industries, and continues to expand.
To answer these questions I will organise my talk in three parts. First, I will briefly recall how the imbalances and structural problems came about and how deep they were before the steps towards reform were taken. This is critical to understand the subsequent adjustment process, the costs involved and the way forward. I will then describe the progress to date. The adjustment process is not yet complete but it has already been significant, and some countries, including Portugal, have taken important steps towards sustainability. Second, I will reflect on the factors that have made the adjustment more painful than it would have been otherwise. My main point will be that a number of rigidities have been preventing a more significant and swift downward nominal adjustment, thereby causing a sharp fall in production and employment. On top of these rigidities, the interplay of an impaired credit channel, fiscal consolidation and falling confidence has deepened the recession. Third, I will argue that there are good reasons to be cautiously optimistic, if reforms continue as planned. European solidarity has helped to smooth the adjustment and prevented sudden-stop scenarios. It is also giving national governments an opportunity to strengthen the conditions for growth, productivity and employment and reap the full benefits of the monetary union. Let me now turn to the first part of the talk. (1)  Tangible progress on correcting imbalances  Since the start of Economic and Monetary Union, the key macro and structural variables of euro area countries have diverged greatly.