Dr. Robert Kelly:

In essence, of course, policy rates and lender rates are very important for investments because, essentially, in finance speak, it changes to what is called a hurdle rate, so the amount of investment has to realise to cover the cost of it. It is, therefore, quite important. We did a piece of analysis within the bulletin and looked at SME firms and how they have responded to this higher interest rate environment. What we saw there, and one would expect this as a transmission effect, is that they decrease the loans that may be more long-term lending, which are for investment basis. What we have seen is maybe a uptick almost perfectly offsetting in terms of their short-term liquidity needs. Therefore, in some ways, this is monetary policy in action. It is about deferring investments. It is about slowing demand and allowing the economy to slow. This is exactly why, as we return to that medium-term stability in terms of a 2% target, the ECB rates will move slowly out of restrictive territory as it sees that horizon coming and it will then undo some of the features of a more restrictive interest rate environment, such as less investment spending.