let me be clear that the exchange rate is not a policy target, but it is important for growth and price stability. another sign of improved confidence is the larger than expected early repayment by counterparties in the first of our two three - year longer - term refinancing operations settled in december 2011 and march 2012. this indicates that banks are less uncertain about their bis central bankers ’ speeches funding prospects than a year ago. we will closely monitor conditions in the money market and their potential impact on the stance of monetary policy, which will remain accommodative with the full allotment mode of liquidity provision. the risks surrounding the economic outlook for the euro area continue to be on the downside. they relate to the possibility of weaker than expected domestic demand and exports, slow implementation of structural reforms in the euro area, as well as geopolitical issues and imbalances in major industrialised countries which could both have an impact on developments in global commodities and financial markets. these factors have the potential to dampen the ongoing improvement in confidence and thereby delay the recovery. annual inflation in the euro area has continued to moderate, falling from 2. 5 % in october to 2. 2 % in november and december and 2. 0 % in january, as we had foreseen. inflation is expected to decline to below 2 % in the near term. risks to the outlook for price developments continue to be seen as broadly balanced over the medium term, with upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity and, more recently, the appreciation of the euro exchange rate. inflation expectations for the euro area remain firmly in line with the governing council ’ s aim of maintaining annual inflation rates below, but close to, 2 %. our monetary analysis is consistent with price stability. the underlying pace of monetary expansion and loan dynamics remain subdued. the annual growth rate of loans to the private sector remains negative. to a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the continuing process of deleveraging. overall, inflationary pressures should remain contained over the policy - relevant horizon. taking the evidence together, this allows our monetary policy stance to remain accommodative. the impact of a low interest rate environment let me turn to the first topic that you have chosen for our meeting today, namely the implications of a low interest rate environment. the impact of

focus on the medium - term horizon and take account of monetary developments in assessing risks to price stability. having said that, let us be clear that changes in policy interest rates are normally not the first best instrument for addressing financial imbalances. they should be considered only under very special circumstances, for example when a widespread rise in asset prices threatens price stability in the euro area as a whole. in the absence of such imbalances relevant from a euro area perspective, the appropriate tools to counter imbalances in the financial sector and possible asset price misalignments are at the country level. to avoid the build - up of excessive risks in the financial system or housing markets, national authorities have appropriate tax and supervisory instruments at their disposal. the establishment of a single resolution mechanism let me turn to your second chosen topic, the establishment of a single resolution mechanism. the single resolution mechanism should be centred in a single resolution authority with a european resolution fund at its disposal. i welcome the european council ’ s december statement that during the course of 2013, the commission will submit a proposal for such a mechanism for member states that are participating in the single supervisory mechanism. the ecb shares the european council ’ s view on timing for the single resolution mechanism, namely that it will be required once bank supervision is effectively moved to the single supervisory mechanism. we therefore welcome the european council urging the co - legislators to examine the proposal as a matter of priority with the intention of adopting it during the current parliamentary cycle. there are four main reasons for a single resolution mechanism, with a single resolution authority at its centre. the first reason is that only a single resolution authority will ensure timely and impartial decision - making focused on the european dimension. in a situation where a cross - border resolution is required, the single resolution authority would avoid national focus and pursue the optimal resolution strategy, thus mitigating coordination problems. the second reason is that the single resolution authority would credibly pursue the least cost resolution strategy, assessing possible cross - border spillover effects and systemic concerns, and ensuring that resolution costs are first and foremost borne by the private sector. it would thereby minimise resolution costs without recourse to taxpayer money. bis central bankers ’ speeches the third reason is that the single resolution authority is an essential complement to the single supervisory mechanism. the single supervisory mechanism will provide a timely and unbiased assessment of the need for resolution, while the single resolution authority will ensure prompt and efficient action once the trigger is reached