inflation figures translate into second - round effects and would hence entail a prolonged period of high inflation. the higher commodity prices – which, as i said earlier, mainly reflect the good performance of emerging economies and are therefore, at least in that sense, a blessing – are a real impoverishment for the euro area economy which cannot be avoided. higher wage claims or price increases seeking compensation for such a deterioration in the terms of trade only postpone necessary adjustments and only lead to a longer period of higher inflation without any longer - run real benefits. therefore, a solid anchoring of inflation expectations is essential and the governing council will do whatever is necessary to maintain price stability over the medium term. the governing council acknowledged that the current monetary policy stance does remain accommodative. “ is this increase the first in a series of interest rate rises? ”, is therefore a question which observers have often raised over the past month. as you all know, the governing council never pre - commits but at the same time, i think our strategy is very clear and markets and observers alike do realise that we will do whatever is necessary to ensure price stability will be maintained. markets currently anticipate a gradual withdrawal of monetary accommodation and i personally think that is no unreasonable assumption, given the clear upside risks to price stability i mentioned earlier. needless to say, it is incoming data and our assessment of the economic outlook that will ultimately determine our course of action and the pace at which monetary accommodation will be withdrawn. another question people often raise is how such an increase in interest rates squares to the ongoing sovereign debt turmoil, which brings me the second challenge i want to discuss. i see two ways in which the sovereign debt turmoil enters our discussion. first, the turmoil does have important bearings on the transmission of monetary policy. indeed, that was the very motivation for setting - up the securities market programme in may 2010 and for re - introducing the regime of fixed - rate full allotment for longer - term operations, which is still in place at the current juncture. it will be maintained for as long as necessary, and at least until july 2011. that should avoid that banks in need of short - term funds are being cut - off from liquidity in case banks with excess funds are no longer willing to lend to them because of uncertainty on counterparties ’ exposure to sovereign debt. at the current juncture, we deem these non - standard measures an essential part of our monetary policy toolkit as they

two types of divergences. at the global level, we currently experience what the imf in its latest world economic outlook calls a two - speed recovery. indeed, the recovery is led in particular by the emerging market economies while the advanced economies are still characterised by rather low growth and excess capacity. the resource - intensive growth of the emerging economies does put severe upward pressure on commodity prices, which are now standing at levels close to those seen before the financial crisis erupted in 2008. of course, not only the fast economic growth in emerging economies pushed up commodity prices, also tensions in the middle east and north africa and the japanese disaster led to higher prices. at the euro area level too, we see divergences. the rather solid recovery for the euro area as a whole does, indeed, hide significant heterogeneity as the so - called “ core countries ” are posting nice growth numbers while the countries most affected by the sovereign and banking crisis are lagging behind. this all means that, when doing our job – which is to maintain price stability –, the governing council faces a number of challenges. first and foremost, the governing council identifies clear upside risks to price stability which do require close monitoring. at the same time, i must admit that the sovereign debt crisis and – in some cases mutually related to that – the still fragile euro area banking sector do complicate the governing bis central bankers ’ speeches council ’ s task as it threatens the good functioning of the monetary transmission mechanism. i will look at each challenge in turn. risks to the inflation outlook have shifted to the upside : the euro area recovery is now gaining a good footing and commodity prices have posted large gains. these higher prices push up inflation : according to eurostat ’ s flash estimate, headline inflation stood at 2. 8 % in april, clearly above the ecb ’ s quantitative definition of price stability. on top, we see a lot of price pressures in the pipeline which implies that the risk of second - round effects is non - negligible today, in the context of a continuing recovery and given the likely persistent nature of the raw materials price increases. therefore, the governing council decided to raise the key ecb interest rate in april to 1. 25 %, up from the 1 % - level at which it stood since may 2009. that interest rate rise – which was widely anticipated by financial markets – indeed aims at avoiding that the first - round effects of higher commodity prices which we see in today ’ s