##rated through the operations conducted by the central bank. let me make a few observations. first, the decisions to unwind the non - standard measures and to adjust the level of key interest rates can to some extent be separated. in particular, any adjustment to the policy stance will depend on the assessment of the risks to price stability. it can be implemented independently from the stage which has been reached at a given moment in the withdrawal of the non - standard instruments. the withdrawal of a non - standard measure would not necessarily have an impact on the monetary policy stance. secondly, a decision about the timing of the exit from the very low level of interest rate requires a close monitoring of all relevant developments. any measure which could pose an upward risk to price stability will be withdrawn in a timely fashion. in this respect i would prefer not to listen to those who are recommending a bias in deciding the timing of the exit, i. e. that it ’ s preferable to err on the side of late rather than early withdrawal. it ’ s pretty obvious that a premature exit may undermine the incipient economic recovery. but a belated response can be equally damaging. this aspect is often underestimated, and rarely studied. indeed, the later the exit – and the greater the catching - up to be done – the more disruptive the asset price adjustment and the bigger the impact on economic activity. thirdly, in assessing whether a given measure should be withdrawn, a central bank should ask itself two questions : are the underlying risks which led it to adopt the measure in the first place still looming? and : could the removal of the measure make such risks reappear? let me consider the following : interest rates have been brought down to levels close to zero in the face of the sharp recessionary pressures and the risk of deflation. as the economy stabilises and the risks of deflation fade away, partly as a result of the measures taken, the question arises as to whether the exit from the low rates would lead to a re - emergence of the risks of recession and deflation. and there ’ s another question : could the low level of interest rates, if prolonged, create at some point distortions in financial markets and in the real economy that might complicate the exit? just to be concrete, nominal one - year government bond yields in the euro area are currently lower than inflation expectations for the next 12 months. this means negative real rates of return. we have to

past regularities. but surveys of both firms and banks indicate that financing costs related to non - interest terms and conditions – such as charges and fees or collateral requirements – have been tightened. credit aggregates have slowed down significantly over recent months. in september lending to the private sector was 0. 3 % lower than a year earlier. this was the first negative number since the start of monetary union. in analysing these credit aggregates, we have to keep in mind the interaction between supply and demand. it is always difficult to disentangle two sides. there are several reasons for expecting loan demand to be weak now. as production has declined considerably over the past year, firms may have delayed or cancelled investment projects, and thus reduced their demand for new loans. similarly, households may think twice about major purchases as job prospects have become more uncertain. compared with past downturns, the recent developments in credit flows seem to be in line with historical regularities. in the past, the pick - up in loans to non - financial corporations has lagged the turning points in economic activity by about three quarters. this means that we should expect lending to non - financial corporations to remain relatively subdued for some time. the annual growth rate of loans to non - financial corporations was - 0. 1 % in september. lending to households, which tends to move more in line with the turning points in economic activity, was 0. 3 % lower in september than a year earlier. the monthly loan flows to households have however been positive and increasing since may this year. overall, the significant slowdown in lending experienced so far can to a large extent be attributed to weak demand, as surveys both of banks and firms have shown. one example is the recent survey on small and medium sized enterprises ’ ( smes ) access to finance, conducted in co - operation between the ecb and the european commission. according to the survey, three out of five smes that had applied for a bank loan in the first half of 2009 received the requested amount in full. around one in five received the requested amount in part. only about one in ten had the loan application rejected. however, some supply - side constraints seem to have played a role. banks have tightened credit standards substantially over the past year. the quarterly survey of banks indicates that the number of banks tightening credit standards has declined, but remains positive. banks have reported that their liquidity position has helped to ease credit constraints very recently. while private - sector demand for