Analysis under the two pillars provides the Governing Council with all crucial information regarding the nature of the shocks within the euro area economy and the resulting risks to price stability. The complementing viewpoints of the two pillars have served us well as a comprehensive framework for analysis in the past two years. The strategy has provided the basis for a thorough and timely explanation of monetary policy decisions to the general public. Since November 1999, the Governing Council raised the main ECB interest rates by a total of 225 basis points in reaction to a perspective of upward risks to price stability. These rises have been appropriate.
Recent developments point towards increasingly balanced risks to price stability in the medium term.
However, the analysis of the information relating to the two pillars of the monetary policy strategy showed that there are still factors which might pose upward risks to price stability and as such will need to continue to be closely monitored. Starting with the first pillar, monetary and credit growth have slowed down in the course of 2000. In fact, the short term dynamics of M3 growth in the second half of 2000 were clearly weaker than in the first half of 2000. This will become visible in the annual growth rate of M3 in the coming months which will be affected downwards by base effects resulting from the strong growth of M3 in the first quarter of 2000. Turning to the second pillar, several developments have recently changed somewhat the outlook for the euro area.