overall dynamics of broad money and credit aggregates. bank loans to the domestic private sector have grown at annual rates around 11 % for the past two years. while the growth of household borrowing has moderated over recent months, loan growth to non - financial corporations remains very strong. in line with its mandate, the ecb ’ s governing council remains strongly committed to preventing second - round effects and the materialisation of upside risks to price stability over the medium term. against this background, on 6 march, we decided to leave the key ecb interest rates unchanged. the current monetary policy stance will contribute to achieving our price stability objective. indeed, the firm anchoring of medium to longer - term inflation expectations is of the highest priority. the governing council will continue to monitor very closely all developments. the separation of the tasks of determining the monetary policy stance on the one hand and the preservation of the proper functioning of the money markets on the other hand let me now address the issue of the separation between the determination of the monetary policy stance on the one hand and its actual implementation on the other hand, meant as keeping short - term rates close to the level chosen by the governing council. in accordance with the treaty provisions, the primary objective of the ecb is to maintain price stability in the euro area. to that end, the governing council determines, on the basis of its economic and monetary analyses, the appropriate monetary policy stance by setting the key ecb interest rates at the level that ensures the maintenance of price stability over the medium term. in view of safeguarding its credibility and firmly anchoring long - term inflation expectations, it is crucial that the governing council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term. once the appropriate level of the key ecb interest rates has been set, the executive board of the ecb implements monetary policy so that the level of the key interest rates decided by the governing council actually prevails in the money market. for this purpose, the ecb steers, primarily by means of open market operations, the liquidity which is lent to euro area credit institutions against adequate and sound collateral and for a given and short period of time. by so doing the ecb also fosters a smooth functioning of the euro area money market. the steering of liquidity has been an important element of the eurosystem ’ s framework for monetary policy implementation since the launch of the euro. by these means, market participants

and after the two scheduled consumption tax hikes, it is likely to continue growing at a pace above its potential, as a trend, as a virtuous cycle among production, income, and spending is maintained. specifically, the annual real gdp growth rate is projected to be around 3. 0 percent for fiscal 2013 and around 1. 5 percent for fiscal 2014 and fiscal 2015, above the potential growth rate considered to be around 0. 5 percent. the year - on - year rate of change in the cpi has recently been at around 0 percent or slightly negative, but looking to the future, the rate of increase is projected to rise, reflecting factors such as the improvement in the aggregate supply and demand balance as well as the rise in medium - to long - term inflation expectations on the back of the change in expectations of economic entities, and it is likely to reach around 2 percent – the price stability target – toward the latter half of the projection period. ii. financial system stability next, i will talk about the relationship between the quantitative and qualitative monetary easing and the financial system. i believe that, if the effect of this policy fully permeates through financial and economic activity, firms and households are likely to increase their positive demand for funds. in this sense, it is vital for the financial system to maintain stability and fundamental strength so that it can adjust to future changes in the situation and respond properly to the increased demand for funds. the bank regularly examines the conditions of the financial system. it now judges that japan ’ s financial system can properly perform the financial intermediation function to support future economic growth. there are two main reasons behind this judgment. soundness of financial institutions : relationship between the amount of risks and capital the first reason is that financial institutions as a whole hold sufficient capital relative to the amount of risks they bear ( chart 5 ). recently, financial institutions have steadily increased their capital, as they have continued to raise equity capital and accumulate retained earnings. the amount of risks has decreased moderately, especially credit risk and risk associated with stockholdings. credit risk has declined because the growth in lending has been slow, reflecting prolonged deflation and sluggish economic activity, and corporate bankruptcies have remained at a low level. moreover, the decline in risk associated with stockholdings resulted from steady efforts made by the banking sector to reduce strategic stockholdings. the proportion of stockholdings at major banks has decreased significantly – from 150 percent of their tier i capital in around