assumed, owing to the need for fiscal consolidation in the coming years. finally, upside risks may come from stronger than expected domestic price pressures in the context of increasing capacity utilisation in the euro area. turning to the monetary analysis, the annual growth rate of m3 was 2. 0 % in april 2011, after 2. 3 % in march. looking through the recent volatility in broad money growth, m3 growth has continued to edge up over recent months. the annual growth rate of loans to the private sector strengthened slightly to 2. 6 % in april, after 2. 5 % in march. overall, the underlying pace of monetary expansion is gradually recovering. at the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample, with the potential to accommodate price pressures in the euro area. bis central bankers ’ speeches looking at m3 components, the annual growth rate of m1 decreased in april, while that of other short - term deposits increased. the development partly reflects the gradual increase in the remuneration of these deposits over recent months. at the same time, the steep yield curve implies a dampening impact on overall m3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer - term instruments outside m3. however, available information suggests that this impact may be waning. on the counterpart side, there has been a further slight strengthening in the growth of loans to non - financial corporations, which rose to 1. 0 % in april, after 0. 8 % in march. the growth of loans to households was 3. 4 % in april, unchanged from the previous month. the latest data confirm a continued gradual strengthening in the annual growth of lending to the nonfinancial private sector. the overall size of bank balance sheets has remained broadly unchanged over the past few months, notwithstanding some volatility. it is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. to address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. in particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency. to sum up, based on its regular economic and monetary analyses, the governing council decided to keep the key ecb interest rates unchanged. the information that has become available since our meeting

productivity developments are therefore far from obvious. opposite policy implications can be drawn depending on the perceived nature of the shocks and on other features of the economic environment through which they are transmitted. any economic model aiming to provide useful guidance for policy should therefore include at least two, and probably three, ingredients. first, it must acknowledge that productivity growth can be driven by shocks with various degrees of persistence. this is a simple way to capture the evidence i reviewed in the first part of my talk. in practice, there is a continuum of possibilities from purely transitory, to transitory but persistent, until truly permanent changes in the rate of productivity growth. the key empirical feature, however, is that transitory shocks tend to explain most of short - term dynamics of labour productivity growth, which is very volatile on a quarterly basis. persistent, or perhaps permanent shocks, occur more rarely and appear to be smaller. second, perceptions as to the persistent nature of productivity shocks must be allowed to change over time. it is difficult to understand in real time the nature of any observed productivity development and it is only normal to revise one ’ s opinions as new information arrives. the drop in u. s. stock market prices in 2001 - 2002 may have been partly the result of a correction of private agents ’ opinion on the strength of the economy. similarly, economic r. j. gordon and i. dew - becker ( 2005 ), “ where did the productivity growth go? inflation dynamics and the distribution of income, ” brooking papers on economic activity, no. 2. pp 67 - 127. and market analysts regularly revise their assessment of trend productivity and output growth as new data become available. a simple way to capture these effects can be to assume that underlying productivity shocks are unobservable, so that economic agents must assess over time the persistent nature of observed developments. 19 the third desirable ingredient is that economic agents must be forward looking to a certain degree, so that perceived future productivity developments must be allowed to impact on their current decisions. based on research conducted at the ecb and elsewhere, a few conclusions emerge from these analyses. 20 first, given that the variance of persistent productivity shocks was in the past small, relative to the variance of temporary shocks, the safest bet in interpreting current developments is to assume that they are most probably driven by temporary shocks. it would be in case new information points persistently in the same direction, that the assumption should be revised in favour of the persistent shock hypothesis.