Subsequently, we have raised the deposit facility rate to 2%, a cumulative increase of 250 basis points (bp), the fastest in the euro's history. We have also created the new Transmission Protection Instrument to ensure the smooth transmission of monetary policy across the euro area. We have amended the conditions of the longer-term refinancing operations, with the specific aim of strengthening the transmission of interest rate increases. And we have announced our intention to stop reinvesting, from early March 2023, all the principal payments from maturing securities under our asset purchase programme, which will give rise to a gradual and predictable reduction in the size of the portfolio. Overall, this monetary policy normalisation process has already translated into a significant increase in market interest rates. But what can we expect in the future? At the last Governing Council meeting we stated that interest rates would still have to rise significantly at a steady pace to reach levels that ensure that inflation will return to its target. As I mentioned earlier, the latest ECB projections forecast inflation of 2.3% (i.e. above the 2% target) in 2025. Those projections were based on the market expectations for the future path of interest rates when they were prepared. Deeming the projections valid, interest rates would therefore need to rise more than the markets expected when they were prepared in order for inflation to return to its target.
I will also offer my opinion on how other economic policy should make a consistent contribution, so that we can chart a course through these uncertain times towards prosperity and opportunity. 1. Euro area: situation and outlook A succession of adverse shocks, including that triggered by Russia's invasion of Ukraine, have rocked the global and, naturally, the European economy. Indeed, given our geographical proximity to the war zone, our close trade and financial ties to Russia and our high dependence on fossil fuel imports from that country, the euro area economy has been one of the hardest hit by the war. The war has sent the prices of energy and other commodities soaring. As these are products that the euro area does not have at its disposal and needs to import, this has led to a significant deterioration in our terms of trade of around 2 percentage points (pp) of (nominal) GDP to 2022 Q3. Moreover, this shock has unfolded amid sky-rocketing global inflation, which has reached levels not seen in several decades and is prompting sharp falls in real income. The reasons behind the rise in inflation are manifold and combine supply and demandside factors, whose weights differ depending on the geographical area in question. In  1/8  BIS - Central bankers' speeches  the case of the euro area, higher energy and food prices have added to the effect of other supply-side factors related in particular to supply-chain disruptions.