Today I would like to address our key challenge in normalising our monetary policy instruments: preserving monetary accommodation, while switching back from net asset purchases to forward guidance on policy rates as the main instrument to steer our monetary policy stance. While this rotation proceeds, we will continue to operate with multiple, complementary instruments, including our policy of reinvesting the principal payment of securities purchased under the APP. The state of the euro area economy Following more than five years of increasingly broad-based economic expansion in the euro area, recent developments point to some loss of growth momentum. Preliminary data show that euro area real GDP expanded by 1.7% year on year in the third quarter of 2018, down from 2.2% in the second quarter. The slowdown in euro area economic growth since the start of the year has reflected in no small part a retreat from the strong growth of 2017. One-off country-specific or sector-specific factors have also contributed to slowing production in recent months. But factors related to protectionism, financial market volatility and vulnerabilities in emerging markets are creating headwinds that are becoming increasingly noticeable. Surveys of euro area business activity and sentiment indicators have softened perceptibly relative to their earlier highs, although they remain in expansionary territory and are still above long-term averages for most sectors and countries. Overall, domestic demand continues to be supported by favourable financing conditions, as well as by the robust labour market and steady income and profit growth that these conditions have fostered.
11 / 12  BIS central bankers' speeches  I would like to make a final comment on the effects of our APP portfolio on bond yields. While, overall, our APP portfolio will continue to exert downward pressure on euro area long-term interest rates, other factors such as economic fundamentals and the creditworthiness of issuers, as assessed by market participants, remain key determinants of the levels of bond yields and spreads. Conclusion The winding-down of net asset purchases is not tantamount to a withdrawal of monetary policy accommodation. The ongoing rotation from net asset purchases towards enhanced forward guidance on key ECB interest rates has preserved the ample degree of monetary policy accommodation that is necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Prudence, patience and persistence will continue to inform our policy decisions. The sizeable stock of acquired assets and the associated reinvestments, as well as the strong anchor for policy rate expectations provided by our enhanced forward guidance, will continue to deliver the monetary policy stimulus necessary for inflation convergence. In any event, all our policy instruments can be adjusted to ensure that inflation moves towards our aim in a sustained manner. 1 This speech builds on my remarks at the UBS Conference, London, 13 November 2018. 12 / 12  BIS central bankers' speeches