Within the ECB Governing Council, around Mario Draghi, we take very seriously the task entrusted to us by the European Treaties of maintaining price stability, meaning medium-term inflation of close to but below 2%. Our monetary policy has safeguarded the euro area against the threat of deflation in recent times, and is achieving tangible progress towards our inflation target: inflation rose to 0.5% in October and should exceed 1% in early 2017. It is supporting demand while narrowing the output gap, which has been reduced from -2.4% in 2014 to -1.0% in 2016 according to European Commission estimatesii. The Eurosystem has already  Page 3 sur 8 provided ample liquidity to the European economy: our holdings under the expanded asset purchase programme amounted to nearly EUR 1,400 bn in October 2016. We can take stock of this progress, while remaining alert to the latest financial developments and their mixed economic effects: the rise in the equity market but also in the long term interest rates; the appreciation of the dollar but quasi-stability of the global euro exchange rate; and the increase in inflation expectations. We should be both confident in our progress, and vigilant with respect to our environment. Until March, we will go on implementing exactly what we said we would: our clear success today in purchasing a volume of EUR 80 bn of assets per month, including corporate bonds, is the best guarantee of our credibility tomorrow.
The credit easing package and expanded APP has been effective too in reducing wholesale funding costs for banks, allowing banks to pass on better funding conditions to their customers. Since summer last year the average cost of borrowing for euro area non-financial corporations has fallen by around 70 bps, and by 90 bps and 110 bps for NFCs in Spain and Italy, respectively. The latest evidence from the July Bank Lending Survey confirms the improvement in credit conditions. During the second quarter of 2015 credit standards continued to ease for firms, and even more so for households. Reflecting the endogenous relationship between credit supply and demand, credit demand also increased among both groups driven mostly by the low level of interest rates. The impact of the expanded APP on bank funding costs has been partially reversed by the recent market repricing. Here, however, the credit easing package and our broader asset purchases could act as complements, in particular the Targeted Long-Term Refinancing Operations. For the APP, the ECB defines the volume of liquidity it would like to inject, but cannot determine the price; for TLTROs, we define the price of the liquidity, but banks determine the volume. One tool can therefore act as an automatic stabiliser for the other. Indeed, as wholesale funding costs for banks have risen, so has the attractiveness of the TLTRO. This substitution effect accounts in particular for the higher participation in the fourth operation by banks in less vulnerable countries.