the measures should also limit to some extent the second risk to financial stability, the build - up of bubbles. the tltros exclude explicitly loans to households for house purchases. furthermore, credit developments are always closely monitored when the assessment from the economic analysis is cross - checked with the signals coming from the monetary analysis, the two pillars of the ecb ’ s monetary policy strategy. thus, concerns that the measure could stoke a housing bubble seem unwarranted. nonetheless, it is important to keep in mind the distinction between what monetary policy can and should do, and what is the domain of macro - prudential policy. monetary policy has the clear primary objective to maintain price stability in the euro area over the medium - term. macro - prudential measures should be used, if needed, to smooth the financial cycle in specific sectors or jurisdictions. bis central bankers ’ speeches

december 2013 eurosystem staff projected hicp inflation at 1. 1 % for 2014. in the most recent projection round of june 2014 – that is, about six months later – inflation was expected to be only 0. 7 % in 2014. while surprises were initially more in headline ( as opposed to core ) inflation and stressed ( as opposed to non - stressed ) countries, very recently the surprises have been more in core inflation figures, and in non - stressed countries. the reasons are well - known : • a mixed bag of supply shocks ( energy & food ; structural reforms in strained countries ) and persistence of underutilised capacity in a wide area of the euro area … • … in a context in which banks ’ credit – a critical ingredient to a self - sustained recovery of investment and durable consumption – was withdrawn in many countries and / or made available to companies and households at interest rates probably only partially justified by increasing lending risk. to address risks and implications associated with a prolonged period of low inflation, we have to ensure that the developments do not become entrenched in inflation expectations. this is why we further cut our interest rate last month in the context of a broader package of mutually reinforcing measures aimed at addressing impairments in lending conditions and the knock - on effects that these impairments are having for the real economy and inflation. loan growth is still contracting ; lending rates have not declined in line with improvements in financial markets. while the lending rates ( for stressed countries ) reflect credit risk, borrowers ’ credit risk is in part endogenous. high lending rates contribute to higher loan delinquencies, which in turn increase the need for banks to make provisions on past legacy loans by increasing lending rates ; so, ex post, higher delinquencies justify high lending rates, and there is a mutually reinforcing spiral of high lending rates, high credit risk and poor macroeconomic conditions. the tltros are designed to contribute to breaking this spiral. they are expected to ease overly tight conditions through several channels. • the first and most important channel is through a reduction in term funding costs for banks. note that the interest rate on the tltros will be fixed over the life of each operation, at the rate on the mros prevailing at the time of take - up, plus a fixed spread of 10 basis points. so if a bank does well in its lending performance, it enjoys very attractive refinancing conditions for up to four years. funding relief