##ed from a monetary policy perspective as long as programme conditionality is fully respected. we would exit from omts once their objectives have been achieved or when there is a failure to comply with a programme. omts would not take place while a given programme is under review and would resume after the review period once programme compliance has been assured. let me now explain our assessment in greater detail, starting with the economic analysis. euro area real gdp contracted by 0. 2 %, quarter on quarter, in the second quarter of 2012, following flat growth in the previous quarter. economic indicators, in particular survey results, confirm the continuation of weak economic activity in the third quarter of 2012, in an environment characterised by high uncertainty. we expect the euro area economy to remain weak in the near term and to recover only very gradually thereafter. the growth momentum is supported by our standard and non - standard monetary policy measures, but is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non - financial sectors, the existence of high unemployment and an uneven global recovery. the risks surrounding the economic outlook for the euro area continue to be on the downside. they relate, in particular, to ongoing tensions in several euro area financial bis central bankers ’ speeches markets and the potential spillover to the euro area real economy. these risks should be contained by effective action by all policy - makers in the euro area. euro area annual hicp inflation was 2. 7 % in september 2012, according to eurostat ’ s flash estimate, compared with 2. 6 % in the previous month. this is higher than expected and mainly reflects past increases in indirect taxes and euro - denominated energy prices. on the basis of current futures prices for oil, inflation rates could remain at elevated levels, before declining to below 2 % again in the course of next year. over the policy - relevant horizon, in an environment of modest growth in the euro area and well - anchored long - term inflation expectations, underlying price pressures should remain moderate. current levels of inflation should thus remain transitory and not give rise to second - round effects. we will continue to monitor closely further developments in costs, wages and prices. risks to the outlook for price developments continue to be broadly balanced over the medium term. upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. the main downside risks relate to the impact of weaker than expected growth in the euro area, in the event of a renewed

that matter for the main economic decisions that the central bank wants to influence. how is it then that monetary policy can have an impact on the economy? well, one can think of long - term interest rates as comprising two elements : expectations regarding the future evolution of short - term rates ; and premia. premia relate to the compensation investors demand for holding on to an asset for a specific period of time ( the term premium ). moreover, they relate to the compensation for risks, such as the possibility of incurring capital losses due to difficulties they may encounter when selling the asset back to the market before maturity and at short notice ( the liquidity premium ). changes in the current policy rate are typically interpreted by markets to also signal changes for short - term rates in the future. that is, they affect market expectations for future short - term rates and therefore, long - term rates. in normal times, this signalling channel works well and market expectations tend to be in line with monetary policy makers ’ intended long - term rates. when, however, short - term nominal rates are at zero or close to zero, this signalling channel loses its potency. the risk is that long - term rates may drift away from the central bank ’ s intended path, in which case financing conditions in the economy will not properly reflect the stance of monetary policy. some academic economists have advocated that, particularly in such a situation, the central bank should engage in active communication regarding the future path of policy rates. 6 this communication would serve as a commitment device for the central bank to follow in the future the announced path of short - term rates, possibly conditional on actual developments in the economy. 7 if this commitment is sufficiently credible, it will be effective in steering expectations regarding future interest rates and so influence the first component of long - term interest rates to which i was referring before. this is turn, will allow the central bank to deliver accommodative financing conditions in the economy over a certain horizon. a number of central banks around the world – most recently including the us federal reserve – have adopted some version of this approach. but the decomposition of long - term rates i mentioned a few moments ago suggests that there is also another possible way for the central bank to deliver appropriate financing conditions in the economy. this second approach is to exert influence on the premia, to the extent that they are unwarranted and reflect dislocations in markets. i would argue that the the argument was originally