to meet the needs of socialist market economy development. the development of the social credit registration system and credit reference agencies is still in its infant stage, credit information of firms and individuals are not effectively collected and accurately assessed and financial institutions cannot make accurate business decisions based on credit information provided by the clients. effective penalty mechanism for credit slippage has not been established and all relevant parties in the society are yet to clarify and build consensus on the basic concept, function and development orientation of the social credit system. rules and regulations concerned with credit registration are rather lagging behind, in particular, there is no clear distinction between reasonable credit information collection and protection of individual privacy and commercial secrets. in such an environment, financial innovation will be inevitably suppressed. 4. an excellent environment of intermediary services. intermediaries will affect financial innovation in the sense whether they could timely and accurately expose the value and risks of financial products to the investors. with the socialist market economy gradually improved, markets will increasingly strengthen its basic role in resource allocation. accordingly, financial innovation will be gradually transferred from relying on administrative approval to market discipline based on standard information disclosure and credit rating, which set higher requirements on intermediary services, such as on payment and settlement, credit rating, accounting and legal advice etc. frankly speaking, compared with international standards, china still has a long way to go not only in improving its accounting, auditing and rating standards, but also in providing the related intermediary service and fostering code of conducts and business integrity. strengthening infrastructure and improving intermediary services, particularly integrity of the intermediaries, become an urgent task to improve financial ecological environment. i listed the above basic conditions for financial innovation from the perspective of financial ecological environment. to cultivate those conditions, we need to further push changes in mindset, institutions and operating mechanisms. therefore, we should further improve financial ecological environment associated with institution building, law enforcement, credit system and intermediary services so as to create a favorable platform for financial innovation. first, establishing a market - driven financial innovation system. basically speaking, financial innovation originates from the intrinsic needs of economic and financial market development. governments at different levels and financial regulatory authorities could only play positive roles by improving legal system and relevant mechanisms and maintaining market orders. take the corporate bond as an example. corporate bond is a matured financial product in market economies and a direct financing tool that market players bear relevant risks themselves ; therefore, we can adopt more market - oriented strategy and

discussion. nevertheless there are two points on which we can be rather sure. first of all there is no doubt that the ecb will stick to its mandate of maintaining price stability. by doing this the ecb contributes towards economic growth. monetary policy in the euro area is not in itself an instrument to foster growth. neither is it a means of fine - tuning the economy. due to these limitations of monetary policy other policies must be given a key role as far as economic growth and employment are concerned. i will come back to that later again. secondly, i want to emphasize that price stability is at present interpreted symmetrically almost without exception. neither inflationary nor deflationary tendencies are in line with price stability. i am convinced that this interpretation is not only important for the isolated perception of monetary policy. it also touches the relationship between monetary policy and other policy areas. therefore, i would like to have a closer look at the definition of price stability. the symmetric interpretation calls for a quantification of price stability with a rate of inflation above zero, for example a target range between + 1 % and + 2 %. alternatively, we can also think of not quantifying the lower bound explicitly. one reason for setting the rate of inflation which is in line with price stability somewhat higher than zero is the exaggeration of the “ true ” inflation rate by the measured change in the price index. i believe that the measurement bias in the euro area is not large but positive. irrespective of that, the risk of deflation - a situation which is difficult to control - requires a certain safety margin of the “ true ” inflation rate from the zero line. such a need for a safety margin results, not least, from the fact that nominal interest rates cannot fall below zero. in my view, the interest rate cut by the ecb in april 1999 already made it very clear that, in order to prevent deflationary risks, the ecb is not targeting a zero inflation rate. and i would like to add that the ecb has quite deliberately not centred the definition of price stability around zero. instead, the ecb ’ s definition of price stability was intended also to take due account of the problems that may arise from the measurement bias, from nominal wage rigidities and from the zero bound of nominal interest rates. but even if the probability of touching the zero bound of nominal interest rates is small for the euro area as whole, we must bear in mind that deflation would