drop in credit demand in the second quarter, as reported in our latest bank lending survey. moreover, credit standards for loans to firms and households tightened further, as banks are becoming more concerned about the risks faced by their customers and are less willing to bear these risks. tighter financing conditions are also making housing less affordable and less attractive as an investment, and demand for mortgages has dropped for the fifth quarter in a row. against this background, the annual growth rate of lending continued to decrease in june, falling to 3. 0 per cent for firms and 1. 7 per cent for households, with annualised growth rates of 0. 0 per cent and - 0. 2 per cent in the second quarter respectively. amid weak lending and the reduction in the eurosystem balance sheet, the annual growth rate of broad money fell to 0. 6 per cent in june, with an annualised growth rate of - 1. 1 per cent in the second quarter. conclusion inflation continues to decline but is still expected to remain too high for too long. the governing council therefore today decided to raise the three key ecb interest rates by 25 basis points. 3 / 4 bis - central bankers'speeches our future decisions will ensure that the key ecb interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our two per cent medium - term target. we will continue to follow a data - dependent approach to determining the appropriate level and duration of restriction. in particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. in any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium - term target and to preserve the smooth functioning of monetary policy transmission. we are now ready to take your questions. 4 / 4 bis - central bankers'speeches

. 1 i will then turn to the current state of the economy to extract inferences about the effectiveness of our strategy. i will then conclude looking forward. monetary policy responses to the crisis in the euro area, the crisis has evolved through three phases. the first phase was triggered by the abrupt liquidity strains that almost paralysed the global financial system in the immediate aftermaths of the collapse of lehman brothers. banks – both in the euro area and elsewhere – suddenly became very uncertain about the underlying health of other banks and stopped lending to each other. the ecb was very swift in its response, faithful to its responsibility to guarantee appropriate liquidity conditions to solvent banks. together with other major central banks, the ecb stepped in with forceful and coordinated interventions to provide essential liquidity to the banking sector. in the euro area, liquidity was made available in virtually unlimited amounts – against eligible collateral – and at increasingly longer tenors, which helped those banks that were being negated access to market refinancing to remain in business and continue their key intermediation function. without this response, the financial system would have imploded and a far deeper contraction would have occurred. 1 / 6 bis central bankers'speeches the second phase of the crisis came as a consequence of the loss of confidence in some sovereigns. it brought on the development of redenomination risk and thereby threatened the integrity of our currency. the sovereign debt crisis found impulse in some cases from a weak fiscal position, whereas in others from a weak banking system. but irrespective of its initial impulse it quickly became a two - way interaction through the “ bank - sovereign ” nexus. banks remained dependent on fiscal authorities for solvency assistance, and the financial obligations vis - a - vis banks that this responsibility created on the side of some national fiscal authorities with weak fundamentals further undermined their credit standing. as the cost of borrowing for certain governments increased, banks with exposures to this debt came under intense market pressure, ultimately leading to entire national banking systems losing market access. this in turn resulted in financial fragmentation and a serious disruption to the monetary transmission mechanism. the ecb had not remained inactive in the face of such vicious feed - back loop, as it saw the implications that such dynamics could have for price stability. but, as the ecb lowered interest rates, these reductions were not being passed on to firms and households in a large part of the euro area, signalling an unusual disconnect between expanding