The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024, and in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly. Further, at our meeting of 14 April, the Governing Council judged that the incoming data reinforced our expectation that net asset purchases under the asset purchase programme (APP) should be concluded in the third quarter of 2022. We also indicated that the raising of key ECB interest rates will take place some time after the end of the net purchases and will be gradual. Lastly, the ECB Governing Council stated that we stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. In step with the communication of this process of monetary policy normalisation, market expectations of policy rate hikes have been brought forward since December. The prospect of the monetary policy stance returning to normal has likewise been reflected in an upturn in long-term interest rates in the euro area.
After the “sprint” to monetary normalisation started in July 2022, we are now entering a new phase of monetary policy that is more comparable to a longdistance race: it will be longer – above all we must not claim victory too rapidly -, but more gradual and more pragmatic in the pace of the next interest rate hikes. It is clearly too early to tell beyond the 3% that we are expected to reach in March – which is well below the current rate of 4.75% in the United States, or 4% in the United Kingdom – at what "terminal" rate key rates will stabilise. But I believe it is possible to shed some light on the path that we should follow, in order to provide some degree of economic predictability. First, regarding the calendar, it seems to me desirable to reach this terminal rate by summer, i.e. by September at the latest. And our decisions will be guided by the economic data: our central criterion for deciding on monetary stabilisation should be the fairly certain turnaround in the underlying inflation trajectory. It is this underlying inflation that monetary policy can best treat, and which provides the best indication of the medium-term perspective of headline inflation. We have not yet reached that turnaround, that economic "threshold". I would also like to dispel a fear: the disinflation that we are about to carry out will not lead to a recession, given the resilience of economic activity and employment.