in greater detail, starting with the economic analysis. since september 2008 the financial market turmoil has intensified and broadened. tensions have increasingly spilled over from the financial sector into the real economy. as a result, economic activity throughout the world, including in the euro area, has weakened further. in particular, foreign demand for euro area exports has declined, and euro area domestic activity has contracted in the face of weaker demand prospects and tighter financing conditions. the survey data and monthly indicators for november and december that have become available since our last meeting clearly point to a further weakening of economic activity around the turn of the year, indicating the materialisation of previously identified downside risks to activity. looking further ahead, on the basis of our current analysis and assessment, we continue to see global economic weakness and very sluggish domestic demand persisting in the coming quarters as the impact of the financial tensions on activity continues. at the same time, we expect the fall in commodity prices to support real disposable income in the period ahead. furthermore, the euro area should over time reap the full benefit from the effects of policy measures announced over recent weeks. in the view of the governing council, this outlook for the economy remains surrounded by an exceptionally high degree of uncertainty. overall, risks to economic growth remain clearly on the downside. they relate mainly to the potential for a stronger impact on the real economy of the turmoil in financial markets, as well as to concerns about the emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances. it is crucial that all parties concerned make their contribution to lay sound foundations for a sustainable recovery. for this to materialise as early as possible, it is of the utmost importance to maintain discipline and a medium - term perspective in macroeconomic policymaking, pursuing a stability - oriented and sustainable approach. this is the best way to preserve and enhance confidence. the significant measures being implemented by governments to deal with the financial turmoil should help to ensure trust in the financial system and to ease constraints on credit supply to companies and households. with regard to price developments, annual hicp inflation has declined substantially since the middle of 2008, when it peaked at 4. 0 %. hicp inflation was 1. 6 % in december, after 2. 1 % in november. as we have emphasised on previous occasions, the significant decline in headline inflation in the second half of 2008 reflects mainly the sharp falls

financial tensions has contributed to a slowdown in the flow of monetary financial institution ( mfi ) loans to the non - financial private sector in recent months. more data and further analysis are necessary to form a robust judgement about the severity and scope of credit constraints and their possible implications for economic activity. to sum up, we decided to reduce the interest rate on the main refinancing operations of the eurosystem by a further 50 basis points, bringing the total reduction since 8 october 2008 to 225 basis points. today ’ s decision takes into account that inflationary pressures have continued to diminish, owing in particular to the further weakening in the economic outlook. the governing council recalls its operational decision, taken on 18 december 2008, to widen again the corridor formed by the rates on the eurosystem ’ s standing facilities as of 21 january 2009. looking forward, we continue to expect inflation rates in the euro area to be in line with price stability over the policy - relevant medium - term horizon, thereby supporting the purchasing power of incomes and savings. after today ’ s decision we consider risks to price stability over the medium - term to be broadly balanced. this takes into account the latest economic data releases and survey information, which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown, largely related to the effects of the intensification and broadening of the financial turmoil. both global demand and euro area demand are likely to be dampened for a protracted period. a cross - check of the outcome of the economic analysis with that of the monetary analysis confirms this view. monetary expansion is moderating further, supporting the assessment that inflationary pressures and risks are diminishing. all in all, the level of uncertainty remains exceptionally high. the governing council will continue to keep inflation expectations firmly anchored in line with its medium - term objective of inflation rates below, but close to, 2 %. this supports sustainable growth and employment and contributes to financial stability. accordingly, we will continue to monitor very closely all developments over the period ahead. regarding fiscal policies, the governing council welcomes the european council ’ s reconfirmation of its full commitment to sustainable public finances. in this respect, the current economic situation calls for particular prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country. the operation of automatic stabilisers will provide a relatively large and powerful fiscal impulse to the weakening economy, in addition to