However, owing to the strong M3 growth in 2001, there is still a lot of liquidity in the economy. We therefore have to monitor monetary dynamics closely in the coming months. The persistence of excess liquidity in the economy could become a concern once the economic recovery in the euro area gathers pace. Turning to economic developments, the latest information has reinforced our expectation that real GDP growth in the euro area will recover in 2002 and that, later in the year, it should again be back in line with potential growth. The recovery should be supported by both domestic and external factors, in an environment in which financial conditions are favourable and where there are no major imbalances in the euro area. However, at the current juncture, some uncertainty still remains regarding the strength of the recovery. As regards price developments, there is no evidence thus far of a significant upward impact on the overall price level from the euro cash changeover. While some shorter-term effects cannot be ruled out, there is reason to believe that the introduction of the euro banknotes and coins will strengthen competition, thereby supporting the maintenance of price stability over the medium term. This notwithstanding, HICP inflation is currently somewhat higher than was expected a few months ago, owing partly to a significant rise in oil prices.
However, that being said, the domestic policymaker understands best the context of the local situation that the country is facing. There should be no doubt in this. Third, policymakers must not be afraid of instituting bold policies if they are deemed necessary. This is especially important during times of stress or market failures that risk the orderly functioning of the economy and financial system. Intervention in markets should not be a knee jerk reaction. As a matter of principle, public policies should always first strive to facilitate a selfregulating free market to correct itself. However, when markets fail, it is incumbent upon the regulator to correct market failures. This ought to be the cardinal rule, especially for small and open economies with sizeable financial markets. More often than not, corrective public policy can be unpopular among the masses, but it is important to not lose sight of the bigger picture, for the greater good. Often times, short-term pain is necessary for longer-term gains. Fourth, clear and transparent communication is crucial. Policies will not be effective if the motivations and understanding between policymakers and the public are not aligned. At the end of 2016, the Bank actively sought out the feedback of industries and market participants that were affected by the financial market development measures we introduced in November 2016. This became an important source of information for us to continuously fine-tune the implementation of the measures to help those affected to better adapt to the new environment.