exchange rate is very careful. the governing council of the ecb has assessed that recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium - term outlook for price stability. in the meantime criticism of the ecb ’ s policy is growing, because your policy is also doing some damage. i don ’ t think that the stimulus policy itself is being attacked. i do constantly hear people asking whether it is time to start tapering though. i understand why the question is asked. growth is back. the risk of deflation has gone. but the current economic expansion has yet to translate sufficiently into stronger inflation dynamics. what is your answer to those who think the ecb is interpreting its objective too narrowly and in the meantime causing unnecessary problems elsewhere? that our mandate is to ensure price stability. and the ecb defined ‘ price stability'in 2003 as ‘ close to two percent inflation in the medium term '. many people looking for the cheapest product while out shopping would probably be happy if inflation was a mere half a percent. why push so hard to get to two percent? because it is very important to be credible. if everyone is confident that our objective is just under two percent inflation, then this is included in contracts and especially in wage negotiations, for example. already now we are seeing some wage negotiations taking place based on the lower inflation rate and not on our almost two percent. this shows that ‘ inflation expectations ’ are still fragile. but why “ almost two percent "? imagine if we defined price stability as zero percent inflation in the euro area. that would mean prices would be rising in some euro area countries, but falling in some other euro area countries. it would mean that as soon as some products became more expensive, the prices of others would have to fall. otherwise you cannot achieve an average of zero. imagine if we defined price stability as one percent : that would mean we would have hardly any scope to reduce the interest rate and intervene if there was a downturn. our margin of safety would then be too small. if you look at it from a long - term perspective, there are very good reasons to aim for close to two percent. it ’ s legitimate to have this debate. but anyone who thinks we should be happy with zero percent inflation because we will otherwise destabilise the financial system is underestimating the importance of aiming for close to two percent inflation. but in the meantime the dangers of

inflation rates below, but close to, 2 % over the medium term. risks to the medium - term outlook for price developments remain on the upside. they relate, in particular, to higher than assumed increases in energy prices, not least on account of the ongoing political tensions in north africa and the middle east. more generally, strong economic growth in emerging markets, supported by ample liquidity at the global level, may further fuel commodity price rises. moreover, increases in indirect taxes and administered prices may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. finally, risks also relate to stronger than expected domestic price pressures in the context of the ongoing recovery in activity. turning to the monetary analysis, the annual growth rate of m3 increased to 2. 3 % in march 2011, from 2. 1 % in february. looking through the recent volatility in broad money growth caused by special factors, m3 growth has continued to edge up over recent months. the annual growth rate of loans to the private sector remained broadly unchanged at 2. 5 % in march, after 2. 6 % in february. overall, the underlying pace of monetary expansion is gradually picking up, but it remains moderate. at the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample and may facilitate the accommodation of price pressures in the euro area. looking at m3 components, the annual growth rate of m1 remained broadly unchanged in march, 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. on the counterpart side, there has been a further slight strengthening in the growth of loans to non - financial corporations, which rose to 0. 8 % in march, after 0. 6 % in february. the growth of loans to households was 3. 4 % in march, compared with 3. 0 % in february. looking through short - term volatility, the latest data confirm a continued gradual strengthening in the annual growth of lending to the non - financial 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