15 16  In particular, the range of the terminal rate estimated with our models is between 1.75% and 3%. See the September ECB Survey of Monetary Analysts. 17  See, for instance, Costain, J., G. Nuño, and C. Thomas, “The Term Structure on Interest Rates in a Heterogeneous Monetary Union", Banco de España Working Paper 2223, 2022. 7  longer maturities, causing a tightening in overall financing conditions over and above that implied by our policy rate path. Therefore, to achieve the same degree of tightening withour overall policy toolkit, short-term rates would not need to increase by so much. Similarly, the run-off of the outstanding TLTRO-III operations in the next two years will entail a significant reduction in the size of the Eurosystem balance sheet, which may also contribute to the normalisation of our monetary policy stance. In this case, however, markets are probably already expecting this automatic reduction in the size of the balance sheet stemming from TLTRO-III. These considerations point to the need to reflect upon the right combination of interest rate increases and quantitative tightening in the coming quarters. Conclusion Let me conclude. There are a few key takeaways from today’s talk that I would like to emphasise. First, euro area inflation has risen mainly due to energy (and food) shocks outside of our control. This does not mean that we at the ECB Governing Council should remain idle. We should continue normalising our monetary policy in order to avoid the emergence of secondround effects and a de-anchoring of inflation expectations.
Although the international money markets have now calmed somewhat, we have not yet seen the end of the turmoil on the financial markets – neither for the financial institutions involved nor for the international economy. After four years of strong growth and low inflation, this means more difficult times ahead for the Swiss economy. Due to the turbulence on the financial markets, the economic outlook has become more uncertain while, at the same time, inflationary pressure has heightened over the past few months – not such a comfortable position for a central bank. A positive element remains the achievements of the past few years, which have laid the foundations for a higher long-term growth trend. These need to be further improved in order to retain Switzerland as a dynamic business location. BIS Review 21/2008  1