##modative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, and the progress made in fiscal consolidation and structural reforms. in addition, real incomes are supported by moderate price developments, in particular lower energy prices. economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. at the same time, although labour markets have shown the first signs of improvement, unemployment in the euro area remains high and, overall, unutilised capacity is sizeable. moreover, the necessary balance sheet adjustments in the public and private sectors 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 financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 0. 5 % in march 2014, down from 0. 7 % in february. the decrease reflects falls in the annual rates of change bis central bankers ’ speeches of the food, goods and services components, partly offset by a more moderate decline in energy prices. on the basis of current exchange rates and prevailing futures prices for energy, annual hicp inflation is expected to pick up somewhat in april, partly related to the volatility of service prices in the months around easter. over the following months, annual hicp inflation is expected to remain low, before gradually increasing during 2015 to reach levels closer to 2 % towards the end of 2016. at the same time, medium to long - term inflation expectations remain firmly anchored in line with price stability. the governing council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. in this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely. turning to the monetary analysis, data for february 2014 point to subdued underlying growth in broad money ( m3 ). annual growth in m3 was broadly stable in february at 1. 3 %, compared with 1. 2 % in january. the growth of the narrow monetary aggregate m1 remained robust at 6. 2 % in february, after 6. 1 % in january. the main factor supporting annual m3 growth continued

consistent with how the reserve bank has interpreted its responsibilities to date and with our increasingly intensive approach to regulation and supervision. financial stability – the soundness or resilience of the financial system – relates directly to the existing purpose of our prudential philosophy and is consistent with our intent to have a dynamic regulatory framework ; a framework with rigorous and adaptable baseline standards and a more searching approach to supervision. ‘ financial stability ’ has the advantage of clarity, providing a sharp focus for the reserve bank, but potentially downplays the importance of efficiency and dynamism that are equally relevant to our over - arching purpose : contributing to a sustainable and productive economy and the prosperity and wellbeing of new zealanders. aspects of efficiency – regulatory efficiency and promoting innovation and competition – are expected to be recognised through sub - objectives that are also being consulted on. increased transparency and accountability for decision - making will also serve to ensure good regulatory decisions are made. rbnz governance board the reserve bank will have a new governance board, with statutory responsibility for financial policy. the board will be accountable for all prudential decisions, including regulation, supervision and enforcement, as well as crisis management. it is expected that the board will be able to delegate powers and the exercise of day - to - day functions and powers to the governor, and in turn reserve bank staff ( supported by internal committees as at present ). the board will set our risk appetite and scrutinise management ’ s efforts to implement it. the new governance structure supports our vision and objectives of being a transparent and accountable organisation. not only will the new board bring diversity of perspectives and experience to key decisions, it will set our strategic direction ( our risk appetite, our policy frameworks ) and explain its decisions and regulatory outcomes to a broad audience, from ref # 8022722 v2. 0 the minister of finance and treasury, through to regulated entities and the general public. it will also create more robust accountability by creating a clearer distinction between governance and management functions, and establishing a delegation framework. adi perimeter the government ’ s decision to merge our regimes for regulating banks and non - bank deposit takers into a single regime for deposit takers will create a simpler, more unified regime, more clearly aligned with our financial stability objective. it will minimise duplication and treat similar activities on the same basis, while continuing to allow our risk - based approach to supervision. it will also help future - proof the regime against a shift in lending and deposit