Time and again, the ECB had to act to prevent an unduly sharp fall in  economic activity and head off the risk of deflation. Deflation, which is a widespread and ongoing fall in prices, may lead consumers to postpone spending and firms to slash 3  investment. Both factors lead to a reduction in aggregate demand, lower output, higher unemployment and further downward pressure on prices. This is arguably as dangerous a situation as spiralling inflation. In late 2008, the ECB faced a situation in which firms, households and governments were carrying excessive debt, at the same time as the banks had to reduce their own leverage. With the collapse of Lehman Brothers, the immediate problem was a shortage of liquidity and the breakdown of the money market. This threatened the health of the euro area economy as a whole, with declining output, rising unemployment and weaker inflationary pressures. In response, between October 2008 and May 2009, the Governing Council  lowered key interest rates by 275 basis points, bringing the rate on the main refinancing operations down to 1.0%. Many of these measures were taken in concert with the major central banks around the world. Under normal economic conditions, such a reduction in short-term interest rates is quickly transmitted to bank lending and deposit rates. In turn, lower interest rates encourage  households and firms to consume and invest more, supporting aggregate demand directly. Moreover, lower interest rates on euro-denominated assets lead to a depreciation of the exchange rate of the euro, stimulating exports.
Time and again, our policies have become even more liberalised than before, as we move forward to make the market more competitive, more transparent and more dynamic. Seven months ago, we took swift and pragmatic actions to implement foreign exchange market development measures to stabilise the foreign exchange market. I am pleased to report that these measures are successful, where the 1-month implied volatility has halved. Onshore foreign exchange have recovered to a stable daily average volume of USD10 billion, an increase of 1.25 times before the measures. Daily foreign exchange turnover remains 5 times higher than equity trades. Another policy that merits attention is the global phenomenon of rising inequality. Markets are not always the best arbitrator for the distribution of jobs, wealth and income. In the era of rapid globalisation, advancement in technology and consequently, the creation of a new economy, there are many winners and losers. As responsible policymakers, we need to reconcile the benefactors of the new economy with those who have been excluded or dislocated during this era of transformation. Cognisant of the urgent need to improve our social safety net, the minimum wage was implemented in 2013. Many have benefitted from this, including migrant workers. The B40 group was also given cash assistance to cope with the rising cost of living. In the near future, the protection and wellbeing of workers will be enhanced through the introduction of unemployment insurance. I urge businesses to take a broader view of these policies and not purely from a cost perspective.