point of the corridor system. second, the marginal lending rate is the interest charged on overnight lending from the eurosystem to banks. it constitutes the ceiling of the corridor system. third, the deposit facility rate governs the remuneration for excess reserves that our counterparties hold with the eurosystem as overnight deposits. it constitutes the floor to the corridor system. moreover, it also provides the floor on interbank market rates as banks have no incentive to lend funds below this rate in the market. setting the deposit rate to a value below zero would imply that the remuneration for excess reserves in the euro area is negative. in other words, banks are charged for making overnight deposits with the ecb. from a technical point of view, we are ready to implement a negative deposit facility rate. and, in general, there are constellations conceivable where the eurosystem could deploy such a negative rate, if it is deemed required by our mandate to safeguard price stability. so what are the pros and cons? theoretically, a negative deposit rate may provide additional accommodation. in the current environment of excess liquidity, the relevant overnight interest rates have shifted close to the deposit rate. in this situation, reductions in the deposit rate could push down overnight interest rates further. at the same time, possible caveats and unintended side effects of this move have to be kept in mind. in particular, crossing the zero line can set off actions in the market that may run counter to the central bank ’ s policy easing intentions. for example, there can be a substitution by private actors towards cash which becomes the highest yielding short - term asset. similarly, the money - holding sector may promote financial innovations that could emulate currency and allow tax avoidance. these actions may undermine the underlying purpose of the move towards negative deposit rates. overall, the consequences are subject to considerable margins of uncertainty as such a move has never been observed in the eurosystem or in any other major currency area in the world. how do these considerations differ from those underlying the move by denmark ’ s or the swiss central bank? both countries apply a fixed exchange rate policy vis - a - vis the euro area. in contrast, the ecb does not consider the euro exchange rate as a policy target. this adds an additional complexity to the monetary policy objective function. what could be the effects of introducing a negative deposit facility rate on the euro exchange rate? one can in principle single out three factors that would

in addition, real incomes are supported by lower energy price inflation. economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. at the same time, although unemployment in the euro area is stabilising, it remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on the pace of the economic recovery. the risks surrounding the economic outlook for the euro area continue to be on the downside. developments in global money and financial market conditions and related uncertainties, notably in emerging market economies, may have the potential to negatively affect economic conditions. other downside risks include weaker than expected domestic demand and export growth and slow or insufficient implementation of structural reforms in euro area countries. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 0. 7 % in january 2014, after 0. 8 % in december. this decline was mainly due to energy price developments. at the same time, the inflation rate in january 2014 was lower than generally expected. on the basis of current information and prevailing futures prices for energy, annual hicp inflation rates are expected to remain at around current levels in the coming months. over bis central bankers ’ speeches the medium term, underlying price pressures in the euro area are expected to remain subdued. inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 %. both upside and downside risks to the outlook for price developments remain limited, and they continue to be broadly balanced over the medium term. turning to the monetary analysis, data for december 2013 confirm the assessment of subdued underlying growth in broad money ( m3 ) and credit. annual growth in m3 moderated to 1. 0 % in december, from 1. 5 % in november. deposit outflows in december mirrored the strong sales of government and private sector securities by euro area mfis, which, in part, could be related to adjustments by banks in anticipation of the ecb ’ s comprehensive assessment of banks ’ balance sheets. these developments also affected annual growth in m1, which moderated to 5. 8 % in december but remained strong. as in previous months, the main factor supporting annual m3 growth was an increase in the mfi net external asset position, which continued to reflect the increased interest of international investors in euro area assets. the annual rate of change of loans to the private sector continued to contract.