- free interest rates – is already negative. so, under current conditions, our indications regarding the most likely evolution of the policy rates are a key instrument for setting the monetary policy stance. our interest rate forward guidance consists of both date and state - contingent legs. the statecontingent leg expresses the anchor of our policy - setting : keeping inflation stably on its sustained path towards levels that are below, but close to, 2 % over the medium term. it says that the policy rates won ’ t be raised until we are sufficiently confident that inflation will reach levels below, but close to, 2 % over the medium term. we further define our forward guidance with additional wording which we refer to as the datebased leg. through that wording the governing council relays to the market information about its expectation of the earliest date at which, given the likeliest path for inflation, the state - contingent part might dictate a first rate increase. as such, it is not a stand - alone proposition. it is a clarification about the rate path that we see as most consistent with the inflation outlook that we face, and with our commitment to achieve our policy objective over the medium term. the datebased leg of our forward guidance directly affects the formation of market expectations by clarifying the course of interest rate policy over a well - defined period of time. it influences the riskfree curve by truncating the left tail of the distribution of market expectations for policy rates. in the run - up to our march meeting, the state - contingent part of our forward guidance with its link to the evolving inflation outlook had already influenced investor expectations a great deal. as investors had been revising their outlook, the point at which they expected a first rate increase had also been extending dynamically into the future, as they were internalising the governing council ’ s commitment – expressed in the state - contingent part of forward guidance – to an 3 / 5 bis central bankers'speeches inflation - dependent “ policy rule ”. the term structure of money market interest rates had been shifting lower and flattening as a result. so, a gap had formed between the market - implied date of a rate lift - off and the governing council ’ s indications, under its time - bound component of forward guidance, of the earliest date at which such a lift - off was likely to occur. since june 2018 this time - bound part of forward guidance had signalled that policy rates were very likely to remain at

- term aim. at the same time, in the light of the continued subdued inflation outlook, monetary policy has to remain highly accommodative for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. we will, therefore, closely monitor inflation developments and the impact of the unfolding monetary policy measures on the economy. our forward guidance will ensure that financial conditions adjust in accordance with changes to the inflation outlook. in any case, the governing council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry. let me now explain our assessment in greater detail, starting with the economic analysis. euro area real gdp increased by 0. 3 %, quarter on quarter, in the third quarter of 2019, following growth of 0. 2 % in the second quarter. this pattern of moderate growth reflects the ongoing 1 / 3 bis central bankers'speeches weakness of international trade in an environment of continued global uncertainties, which has particularly affected the euro area manufacturing sector and has also dampened investment growth. at the same time, the services and construction sectors remain more resilient, despite some moderation in the latter half of 2019. incoming economic data and survey information point to some stabilisation in euro area growth dynamics, with near - term growth expected to be similar to rates observed in previous quarters. looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains in conjunction with rising wages, the mildly expansionary euro area fiscal stance and the ongoing – albeit somewhat slower – growth in global activity. the risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding. euro area annual hicp inflation increased to 1. 3 % in december 2019, from 1. 0 % in november, reflecting mainly higher energy price inflation. on the basis of current futures prices for oil, headline inflation is likely to hover around current levels in the coming months. while indicators of inflation expectations remain at low levels, recently they have either stabilised or ticked up slightly. measures of underlying inflation have remained generally muted, although there are further indications of a moderate increase in line with previous expectations. while labour cost pressures have strengthened amid tighter labour markets