##rated to strike a balance between, on the one hand, offsetting the direct cost of negative interest rates on bank profitability, thereby helping to sustain the pass - through of low policy rates to bank lending rates, and on the other, preserving the positive contribution of negative rates to the accommodative stance of monetary policy and the continued sustained convergence of inflation to our aim. reconciling these two goals is possible, since the value of funds in the money market is determined by their cost at the margin. that marginal cost will continue to be set by the rate on our deposit facility, and it will not be influenced by the higher remuneration that banks will receive on the portion of their reserves that will be exempt under the new scheme. the excess liquidity that will be created in exchange for the additional bond purchases that start in november will also further increase the non - exempt amount, which has already been calibrated in such a way as to preserve a high level of trading activity in the money market. in any case, we will actively monitor conditions in the money market and adjust parameters as necessary to maintain an active trading environment and to ensure that the easing effects of a reduction in the overnight interest rate are transmitted effectively through the entire yield curve. to sum up, the measures we announced last week complement each other and together constitute a powerful package. as i previously noted, the evidence shows that our monetary policy measures have been an effective response to the environment that the ecb has faced in recent years. the cut in the deposit facility rate lowers the anchor for the entire term structure of interest rates, while the forward guidance on interest rates steers expectations of the short - term interest rate path. the forward guidance protects the short to medium - term segment of the yield curve from unnecessary volatility by eliminating residual uncertainty about the expected rate path over the forward guidance horizon. in addition, it helps to steer the long end of the yield curve by affecting the expectations component of longterm interest rates. renewed net asset purchases reinforce the downward pressure on long - term rates by reducing risk premia, and also complement the impact of forward guidance on the expected short - term rate path by signalling the governing council ’ s commitment to maintain a highly accommodative monetary policy stance for a prolonged period of time. new net asset purchases will also mitigate the mechanical upward pressure on long - term rates that ensues from the gradual ageing of our portfolio and the associated loss of

european central bank : press conference - introductory statement introductory statement by mr willem f duisenberg, president of the european central bank and mr lucas papademos, vice - president of the european central bank, at the press conference held in lisbon, 2 october 2003. * * * ladies and gentlemen, the governing council of the european central bank today met for the eighth time outside frankfurt. i would like to thank both governor constancio for his invitation and generous hospitality, as well as the staff of the banco de portugal for an excellently organised meeting. turning to business, we have decided to leave the key ecb interest rates unchanged. the basic components of our economic and monetary analysis remain in place. in particular, the medium - term outlook for price stability continues to be favourable, allowing us to conclude that the historically low level of ecb interest rates remains appropriate. this also lends ongoing support to economic activity. we will continue to carefully monitor all developments which might affect our assessment. the more detailed considerations underlying our decision are as follows : starting with the economic analysis, real gdp growth in the euro area was virtually stagnant in the first half of this year. however, the latest data and information are consistent with a moderate pick - up in activity in the second half. in particular, there are signs that economic activity might have firmed somewhat in the third quarter, and confidence indicators available up to september generally point to some improvement in economic expectations. in line with available forecasts and projections, this upturn should gradually strengthen in the course of 2004. externally, the recovery in world economic activity appears to be proceeding. this should support demand for euro area exports, counteracting the effects of the deterioration in price competitiveness. domestically, companies seem to be continuing their adjustment efforts to enhance productivity and profitability. this, together with the low level of interest rates, should contribute to a recovery in investment. furthermore, terms - of - trade effects stemming from the past appreciation of the euro should positively affect real disposable income in the euro area, and thereby private consumption. developments in financial markets are generally consistent with this overall picture. the short - term risks to our main scenario of a gradual recovery appear to be broadly balanced. however, some risks to the sustainability of economic growth at the global level remain. these are related to the medium - term sustainability of public finances in major industrialised countries and, in this connection, the adjustment of external imbalances in some regions of