”, current issues in economics and finance, federal reserve bank of new york, january 2008. analysis is deep enough to identify the risk signal on the basis of the underlying shocks that drive monetary dynamics. the 2005 experience represents an example of how the monetary pillar of the ecb ’ s strategy could help integrate asset price developments – and their eventual misalignments – into an overall framework directed towards the attainment of our goal : price stability. while asset prices had started the last phase of their tumultuous run - up, which eventually led to the crash, money and credit were strong and this signalled lax credit conditions. in the event, we were proved to have been right in ignoring those indicators and the signals we could extract from our economic analysis, which did not at the time indicate any need for a tightening in policy. monetary analysis is in progress. the signal extraction problem that it helps solve is not an easy task. it requires a substantial amount of work and continuous efforts on the part of central banks ’ staff to improve and update the analytical tools and techniques. in particular, the speed of innovation in global financial markets and their increasing interlinkages contribute to changing the landscapes where central banks operate. the governing council has promoted a complex process of enhancement of these tools and techniques along several avenues. the ecb has always been at the forefront of research in monetary analysis. we expect that, as this process of tool enhancement comes to completion, our leading position in this field – which is so important for central bank analysis – will be strengthened further. conclusion let me conclude. i have talked about the challenges for monetary policy over time, especially in the light of the current financial crisis. naturally, i have focussed mainly on the experience of the ecb. i would see three main messages. the first is on our mandate and monetary policy strategy. we are fully committed to our mandate, which is to safeguard price stability in the euro area. to this end, our two - pillar monetary policy strategy has served us well, both with respect to internal decision - making and in terms of our external communication. this has helped the ecb to ensure, in particular, that its monetary policy remains consistent, credible and effective. the second message is about the ecb ’ s monetary policy during the financial crisis. in response to the crisis, the ecb has taken forceful and timely action. in particular, it did not shy away from taking some highly unusual but appropriate measures with the aim of supporting

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