at this stage warrant a reassessment of the current monetary policy stance. as in the past, the ecb ’ s monetary policy will be forward - looking and geared towards a medium - term horizon. it will not respond to short run fluctuations. sustained adjustment in the path of inflation to levels below, but close to 2 % over the medium term still requires very favourable financing conditions, which remain predicated on a very accommodative monetary policy stance. we still need to build sufficient confidence that inflation will indeed converge to this aim over a medium - term horizon and will remain there even in less supportive monetary policy conditions. monetary policy can support the absorption of economic slack, but it cannot strengthen potential growth. the current track record of the euro area economy is encouraging when judged against the subpar performance in the post - crisis years. but it is insufficient when judged against the long - term challenges the euro area is facing due to the debt loads inherited from the crisis and the implicit liabilities created by its ageing societies. so while short - term risks to the economy have somewhat abated in recent times, growth - enhancing structural policies remain warranted to tackle persisting longer - term vulnerabilities. 1 / 1 bis central bankers'speeches

very weak. according to the survey data for the last two months, there are tentative signs of a stabilisation in economic activity at a low level. looking ahead, we expect the euro area economy to recover very gradually in the course of 2012. the very low short - term interest rates and all the measures taken to foster the proper functioning of the euro area financial sector are lending support to the euro area economy. moreover, stress in financial markets has diminished in response to our monetary policy measures, but also in response to the progress made towards a stronger euro area governance framework and intensified fiscal consolidation in several euro area countries. however, subdued global demand growth, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non - financial sectors, continue to dampen the underlying growth momentum. this outlook is subject to downside risks. they notably relate to tensions in euro area debt markets and their potential spillover to the euro area real economy. downside risks also relate to possible adverse developments in the global economy, higher than assumed increases in commodity prices, protectionist pressures and the potential for a disorderly correction of global imbalances. bis central bankers ’ speeches euro area annual hicp inflation was 2. 7 % in january 2012, according to eurostat ’ s flash estimate, unchanged from december. the average inflation rate for 2011 was 2. 7 %, mainly driven by higher energy and other commodity prices. looking ahead, inflation is likely to stay above 2 % for several months to come, before declining to below 2 %. this pattern reflects the expectation that, in an environment of weak growth in the euro area and globally, underlying price pressures in the euro area should remain limited. risks to the medium - term outlook for price developments remain broadly balanced. on the upside, they relate to higher than assumed increases in indirect taxes and administered prices, as well as increases in commodity prices. the main downside risks relate to the impact of weaker than expected growth in the euro area and globally. the monetary analysis indicates that the underlying pace of monetary expansion remains subdued. the annual growth rate of m3 decreased to 1. 6 % in december 2011, after 2. 0 % in november, reflecting a further weakening of monetary dynamics towards the end of the year. the annual growth rates of loans to non - financial corporations and loans to households, adjusted for loan sales and securitisation, also decreased further in december, and