months. the annual growth rate of m3 in october, at 12. 3 %, is likely to have been influenced by a number of temporary factors, such as the flattening of the yield curve, the financial market turmoil and specific transactions associated with the restructuring of certain banking groups. however, even taking these special factors into account, the underlying rate of monetary expansion remains strong. moreover, the sustained expansion of loans to the domestic private sector, which grew at an annual rate of 11. 2 % in october, points to the continued vigour of underlying monetary dynamics. monetary developments therefore continue to require very careful monitoring, both to detect underlying trends associated with inflationary pressures at longer horizons and to better understand shorter - term dynamics. such monitoring will also provide a more complete picture of the response of the private sector to the increased volatility in financial markets. a broad assessment of underlying trends in money and credit growth is particularly important at present given recent financial market developments. heightened financial volatility may influence the short - term behaviour of money - holders and thereby complicate the extraction of the underlying trend monetary developments. at the same time, monetary and credit data can also offer an important insight into how financial institutions, households and firms have responded to the financial market turmoil. for the time being, however, there is little evidence that the financial market turbulence since early august has strongly influenced the dynamics of broad money and credit aggregates, although specific balance sheet items, such as holdings of money market fund shares / units, may have been affected. indeed, the growth of bank loans to households and non - financial corporations has remained robust in recent months, which may suggest that the supply of credit has not been impaired. further data and analysis will be required to develop a more complete view of the impact of the financial market developments on bank balance sheets, financing conditions and money and credit growth. to sum up, a cross - check of the outcome of the economic analysis with that of the monetary analysis fully confirms the assessment that there are upside risks to price stability over the medium term, in a context of vigorous money and credit growth and against the background of sound economic fundamentals in the euro area. at the same time, the reappraisal of risk in financial markets is still evolving and uncertainty about the potential impact on the real economy has continued. consequently, the governing council will monitor very closely all developments. our monetary policy stands ready to counter upside risks to price stability, as required by our mandate

real gdp in the third quarter of 2010, recent statistical releases and survey - based evidence confirm that the positive underlying momentum of economic activity in the euro area remained in place towards the end of 2010. looking ahead at 2011, euro area exports should benefit from a continued recovery in the world economy. at the same time, and particularly taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. however, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. in the governing council ’ s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty remaining elevated. on the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. on the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. further downside risks relate to renewed increases in oil and other bis central bankers ’ speeches commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. with regard to price developments, euro area annual hicp inflation was 2. 2 % in december, according to eurostat ’ s flash estimate, after 1. 9 % in november. this was somewhat higher than expected and largely reflects higher energy prices. looking ahead to the next few months, inflation rates could temporarily increase further. they are likely to stay slightly above 2 %, largely owing to commodity price developments, before moderating again towards the end of the year. overall, we see evidence of short - term upward pressure on overall inflation, stemming largely from global commodity prices. while this has not so far affected our assessment that price developments will remain in line with price stability over the policyrelevant horizon, very close monitoring of price developments is warranted. inflation expectations over the medium to longer term continue to be firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to the medium - term outlook for price developments are still broadly balanced but could move to the upside. upside risks relate, in particular, to developments in energy