##ened in the wake of ongoing sluggish demand in the euro area and elsewhere. this outlook is consistent with the june 2009 eurosystem staff projections for euro area inflation, in which annual hicp inflation is seen to range between 0. 1 % and 0. 5 % in 2009, revised slightly downwards from the march 2009 ecb staff projections. for 2010, eurosystem staff project annual hicp inflation to range between 0. 6 % and 1. 4 %, broadly unchanged from the march 2009 ecb staff projections. available forecasts from international organisations provide a similar picture. against this background, it is again important to stress that the indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. risks to these projections are broadly balanced. on the downside, these risks relate in particular to the outlook for economic activity, while on the upside they relate to higher than expected commodity prices. furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. turning to the monetary analysis, the latest data confirm the continued deceleration in the pace of underlying monetary expansion and thus support the assessment of moderate inflationary pressures. in april, the annual growth rate of m3 declined further to 4. 9 % and that of loans to the private sector to 2. 4 %. however, especially with regard to m3 growth, the pace of decline in annual growth rates was slower than in previous months, reflecting a brisk growth in monetary aggregates in april. the latest developments in m3 components continue to reflect to a large extent the impact of past reductions in key ecb interest rates, which have led to declines both in the levels of different deposit interest rates and in the spreads between them. this has implied, for instance, lower opportunity costs for market participants to shift funds into highly liquid overnight deposits and explains the strengthening of annual m1 growth to 8. 4 % in april. at the same time, the reduced remuneration of other short - term deposits and marketable instruments continues to foster the allocation of funds to instruments outside m3. the outstanding amount of mfi loans to the private sector contracted somewhat further in april. this development is again mainly due to a negative flow of short - term lending to nonfinancial corporations, which partly reflects a lower need for working capital in view of the sharp deterioration

in economic activity and business prospects during the first few months of the year, and greater recourse to liquidity buffers in financing such working capital. by contrast, longer - term lending to non - financial corporations remained positive. the past reductions in key ecb rates have continued to be passed on to lending rates to both nonfinancial corporations and households. the resulting improvement in financing conditions should provide ongoing support for economic activity in the period ahead. however, given the challenges which lie ahead, banks should take appropriate measures to further strengthen their capital bases and, where necessary, take full advantage of the government measures to support the financial sector, in particular as regards recapitalisation. to sum up, the current key ecb interest rates are appropriate taking into account our decisions of early may, including the enhanced credit support measures, and all the information and analyses which have become available since then. we confirmed our expectation that price developments over the policy - relevant horizon will remain dampened by the marked weakening of economic activity in the euro area and globally. recent survey information indicates that, following two quarters of very negative growth, economic activity over the remainder of this year is expected to decline at much less negative rates. after a stabilisation phase, positive quarterly growth rates are expected by mid - 2010. this assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. at the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. a cross - check with the outcome of the monetary analysis supports the assessment of moderate inflationary pressure, as money and credit growth have further declined on an annual basis. against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. as the transmission of monetary policy works with lags, our policy action will progressively feed through to the economy in full. hence, with all the measures taken, monetary policy will provide ongoing support for households and corporations. once the macroeconomic environment improves, the governing council will ensure that the measures taken can be quickly unwound and the liquidity provided absorbed. hence, any threat to price stability over the medium to longer term can be effectively countered in a timely fashion. as has been emphasised many times, the governing council will continue