period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability. the accommodative stance of our monetary policy, together with the significant improvements in financial markets since mid - 2012, should help to support prospects for an economic recovery later in the year and in 2014. on non - standard measures, the governing council decided in may to continue conducting all refinancing operations as fixed - rate tender procedures with full allotment, at least until mid - july 2014. this measure will help to support a smooth transmission of the ecb ’ s bis central bankers ’ speeches monetary policy stance. in particular, it will ensure that banks ’ lending decisions are not impaired by funding constraints. the governing council also decided in may to start consultations with other european institutions on initiatives to promote a functioning market for asset - backed securities ( abs ) collateralised by loans to non - financial corporations. before discussing this issue in more depth, let me briefly comment on the economic outlook. economic activity in the euro area contracted for a sixth consecutive quarter in the first quarter of 2013. labour market conditions remain weak. recent confidence indicators based on survey data have shown some further improvement, albeit from low levels. overall, euro area economic activity should stabilise and recover over the course of the year, although at a subdued pace. the risks surrounding the economic outlook for the euro area continue to be on the downside. the recent tightening of global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries. annual inflation in the euro area has continued to moderate, falling from 2. 5 % in 2012 to 1. 6 % in june. looking ahead, the underlying price pressures over the medium term are expected to remain subdued, reflecting the broad - based weakness in aggregate demand and the modest pace of the recovery. inflation expectations nonetheless continue to be firmly anchored in line with the governing council ’ s aim of maintaining inflation rates below, but close to 2 %. risks to the outlook for price developments are expected to be still broadly balanced over the medium term. upside risks relate to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices. downside risks stem from weaker than expected economic activity. consistent with our expectations of low underlying inflationary pressures over the medium

essentially monetary origins of inflation over the longer term. the second pillar of the monetary policy strategy is a broadly based assessment of the outlook for price developments and the risks to price stability in the euro area as a whole. the governing council recognises that it is important, in parallel with the assessment of monetary growth, to look at a wide range of financial and other economic indicators, including economic forecasts. this systematic analysis of all other relevant information about economic and financial conditions will ensure that the governing council is as well - informed as possible when taking monetary policy decisions. monetary developments can reveal useful information about future price developments and thereby offer an important compass for the conduct of monetary policy. therefore, it is absolutely essential for any central bank entrusted with the task of keeping prices stable to analyse and monitor the developments of monetary aggregates closely. consequently, the governing council of the ecb has announced a quantitative reference value for broad monetary growth as measured by m3, which should, under normal circumstances, give some indication of future inflationary pressure. the choice of m3 as an aggregate is supported by empirical evidence regarding the long - run stability and leading indicator properties of this aggregate. moreover, conceptual arguments pointed to the considerable importance of including in the monetary aggregate those assets which have a high degree of substitutability with narrower definitions of money. therefore, in addition to currency in circulation and deposits, repos, units or shares of money market funds and money market paper as well as short - term debt securities, all of which are close substitutes for more traditional bank deposits, have also been included in this definition. the first reference value for m3 growth has been set at an annual rate of 4½ %. this reference value is consistent with the maintenance of price stability over the medium term, while allowing for sustainable output growth and the trend decline in the velocity of circulation of m3. in setting the reference value for monetary growth, the governing council has taken account of various factors and emphasised its medium - term orientation. first, the governing council is committed to maintaining price stability according to the definition enshrined in the treaty on european union. this requires increases in the hicp for the euro area of “ below 2 % ”. second, the governing council takes the view that a figure in the range of 2 % to 2½ % per annum for the trend growth in real gdp in the euro area appears to be reasonable. third, the uncertainties concerning short - term developments in velocity linked to the start of