10 The preexisting capital buffers available in the banking system, globally and in Switzerland, played a key role in this regard. The continued credit flow, together with extensive public support measures, helped firms and households bridge their income and liquidity shortfalls. Hence, concerns that the economic shock from the pandemic would be amplified by banks scaling back their lending have not materialised. A qualitative survey launched by the SNB in 2020 shows in fact that loan rejection rates did not increase significantly, even in the most acute phase of the pandemic, and virtually no banks reported their own capital situation as a factor limiting credit supply. 11  Macroprudential policy beyond the pandemic We have seen so far that macroprudential policy can help to contain the build-up of vulnerabilities and strengthen banking sector resilience. The pandemic has moreover shown us that a well-capitalised banking sector can dampen the economic impact of shocks, contributing to a faster recovery. So where do we stand today? According to our monetary policy assessment last week, the global economic recovery is expected to continue, although somewhat subdued by the economic consequences of the war in Ukraine. At the same time however, financial system vulnerabilities are increasing. Several national authorities and international institutions have highlighted stretched valuations, in particular in real estate markets, and are pointing to high levels of corporate and sovereign indebtedness. Let me elaborate further, focusing on real estate markets. As we discussed earlier, these markets are mostly credit financed so that 9  Cf.
Measures of underlying inflation however have yet to show convincing signs of a sustained upward trend, despite an uptick in recent months. Domestic cost pressures remain subdued, with wage growth still low by historical standards. At the same time, the deflation risk in the euro area has essentially disappeared. Because of anticipated base effects in energy prices, headline inflation is likely to temporarily decline towards the end of the year. The latest ECB staff projections point to annual euro area headline inflation of 1.5% in 2017, 1.2% in 2018 and 1.5% in 2019. Risks to this inflation outlook are broadly balanced. Exchange rate volatility represents one source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability in the euro area. Looking ahead, underlying inflation is expected to rise gradually over the medium term, supported by our monetary policy measures, the expected continuing economic recovery and the corresponding gradual absorption of slack in the euro area economy. However, progress towards a durable and self-sustaining convergence of inflation towards our objective is not yet sufficiently convincing. Thus, a very substantial degree of monetary accommodation is still needed to secure a sustained return of inflation towards levels below, but close to, 2% over the medium term – in line with the ECB’s mandate.