speeches euro area financial markets, this effect cannot just be assumed. to achieve a homogenous reduction of term premia across relevant interest rates, segmentation would have to be taken into consideration in our strategy. overall, the yardstick for the success of any targeted asset purchases would not be the size of our balance sheet, but the observable effect of our operations on term premia across markets and jurisdictions. or put differently, asset purchases in the euro area would not be about quantity, but about price. this is why i said that quantitative easing is a misnomer. however, whether reducing term premia would in turn be effective in reducing real interest rates for firms and households depends on complementary policies, in particular the continued repair of the banking sector. for example, the sizeable reduction of spreads we have witnessed since july 2012 has not in itself translated into higher credit volumes and lower bank lending rates. this is largely because the restructuring of the euro area banking sector remains ongoing. thus, an essential complement to any monetary policy strategy is a strict implementation of the ongoing comprehensive assessment of euro area banks and swift corrective action to bridge identified capital shortfalls. let me conclude. unconventional monetary policy tools are less unconventional than the word implies. they are unusual, because they respond to highly unusual circumstances. they imply risks that have to be carefully weighed and mitigated. but fundamentally, unconventional tools are only a means for central banks to continue doing what they have always done : managing aggregate demand, by influencing the level of real interest rates and other monetary transmission channels, to maintain price stability. to borrow from giuseppe tomasi di lampedusa, in these unusual times “ everything must change, so that everything stays the same ”. it is this that will determine both the appropriateness of using targeted asset purchases in our monetary policy operations, and the design of any such purchases. bis central bankers ’ speeches

that the levels of medium - and long - term real interest rates across jurisdictions and markets will always be relevant to the formulation of monetary policy. the difference between normal and abnormal times is therefore not what we are trying to achieve – it is how we strive to achieve it. in normal times, central banks affect this array of interest rates by steering the overnight interest rate and influencing expectations. we do the former through setting policy rates and the latter by communicating transparently our reaction function. this allows market participants to form reasonable assumptions about future short - term rates, which in turn allows our monetary impulses to be transmitted along the yield curve to longer - term interest rates. monetary policy - making becomes more complicated, however, when short - term nominal rates reach the effective lower bound. here, our ability to alter the monetary policy stance relies comparatively less on the level of the overnight rate, and comparatively more on influencing expectations, i. e. on the shape of the yield curve. this is why central banks have introduced forward guidance, which is enhanced communication on the expectations and bis central bankers ’ speeches reaction function of the central bank. it is essentially a natural extension of “ normal ” monetary policy. forward guidance influences the long - term interest rate by acting on both its determinants. it helps steer expectations about the level of future rates. and it lowers uncertainty about this level – that is, reduces the time - value of money or the term premium. yet, as an instrument it also has natural limitations. a monetary policy committee cannot credibly commit to keep interest rates low beyond its horizon of visibility. this is reflected in the specific wording of our forward guidance, in particular the fact that it is outcome - contingent. hence, should further monetary accommodation be needed, it is reasonable to consider other operations aimed at lowering the term premium. this is where targeted asset purchases enter the toolset of monetary policy. targeted asset purchases mean operations aimed primarily at impacting the level of the term premium across maturities and market segments. consistent with public statements made by members of the ecb governing council recently – in particular our president, mario draghi, and my colleague on the board of the ecb, peter praet – i would like to make a few qualifying remarks about the possible use of such purchases by the ecb. first, at its meeting last week the governing council confirmed our baseline scenario – that is, a prolonged period of low inflation followed by a gradual rise in inflation rates towards 2 %