( conducted in december 2011 and february 2012 ), resumption of the securities markets programme ( smp ), reducing the reserve ratio, a cut in key interest rates, and modification of collateral requirements. in july this year, moreover, the ecb cut key interest rates by another 25 basis points : the interest rate on the main refinancing operations was reduced from 1 percent to the historically lowest figure of 0. 75 percent, that on the marginal lending facility from 1. 75 percent to 1. 5 percent, and that on the deposit facility from 0. 25 percent to 0 percent. these actions helped lower the short - term interest rates in the euro - denominated money markets and moderated tensions in the area ’ s financial markets. the yields on long - term sovereign bonds have also declined in the whole euro area, including the peripheral countries. a decline in bank lending rates has also followed in line with the decrease in yields. nonetheless, the scale of the decline in those rates for the peripheral countries has not been sufficiently large to narrow the gap with those rates in the core countries ( chart 1 ). this is mainly because the vicious cycles between sovereign and financial stresses – and bis central bankers ’ speeches their repercussions on the real economy – have not been curtailed in the peripheral countries. the high bank lending rates in the peripheral countries are closely associated with the highrisk premiums charged on the yields on their sovereign bonds by investors. given that these premiums are far above those justified by the economic fundamentals, according to an estimate by the organisation for economic co - operation and development ( oecd ) ( chart 2 ), they could be called a “ fear premium ”. the international monetary fund ( imf, 2012 ) also reports that these premiums are predominantly driven by a common factor rather than country - specific macro / liquidity risks. as long as there is the fear of possible reversibility of the euro – even in a situation where the expected probability of that tail - risk scenario is extremely low – the ecb will find it very difficult to lower the yields on sovereign bonds of these peripheral countries on a sustainable basis. the fear premium has also promoted fragmentation of the financial markets within the euro area by discouraging cross - border financing activities in the private - sector between the core and peripheral countries. this has resulted in greater dependence of the financial sector in the peripheral countries on the ecb ’ s refinancing operations, or emergency

examine developments in income in relation to those in consumption. for the january – march quarter, the year - on - year rate of change in real compensation of employees registered minus 0. 6 percent, which was significantly lower than the 3. 7 percent increase in real private consumption. in a situation where real wages per employee are likely to continue declining for the time being, the pace of improvement in real compensation of employees is likely to be moderate. in such a case, the uptrend in private consumption may weaken, leading to a slower rise in the inflation rate. thus, careful monitoring of future developments is required. nevertheless, i personally consider that, even if the uptrend in private consumption weakens slightly, this will not necessarily have negative effects on the economy in the long run. this is because a significant imbalance is currently observed among the paces of increase in the variables of prices, wages, and private consumption ; for example, real wages seem to be continuing to decline, even on a basis excluding the temporary effects of the tax hike. in such a situation, if weaker growth in private consumption restrains the rise in the inflation rate, it is expected that real wages will increase and private consumption will continue growing bis central bankers ’ speeches moderately at a pace in line with this wage increase. if demand increases in this way at an appropriate pace in a situation where supply - side constraints are beginning to be acknowledged, a more balanced and prolonged economic recovery, albeit moderate, will likely be achieved. d. outlook for prices as for the outlook for prices, i take a more cautious view than the forecast in the bank ’ s baseline scenario. therefore, i formulated a proposal to change the expression regarding the outlook for prices in the april 2014 outlook report, although it was defeated by a majority vote during the monetary policy meeting. specifically, i proposed to change the expression that the year - on - year rate of increase in the cpi “ is likely to be around 1¼ percent for some time, follow a rising trend again from the second half of this fiscal year, and reach around 2 percent around the middle of the projection period ” to a new expression that it “ is likely to remain generally stable around the current level over time ”. i consider that, for the time being, developments in prices will depend mainly on the balance between strengthening of trend inflationary pressure – due mainly to the improvement in the output gap – and waning of upward pressure from import prices. on this point, there seems to