Introductory statement to the press conference (with Q&A)
Central bank: ecb | Type: press_conference | Date: 2017-10-26

INTRODUCTORY STATEMENT

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, today we conducted a thorough assessment of the outlook for inflation, the risks surrounding this outlook and our monetary policy stance. As a result, the Governing Council took the following decisions in pursuit of its price stability objective.
First, thekey ECB interest rateswere kept unchanged and we continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.
Second, as regardsnon-standard monetary policy measures, we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €60 billion until the end of December 2017. From January 2018 our net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration.
Third, the Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
And fourth, we also decided to continue to conduct the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2019.
Today’s monetary policy decisions were taken to preserve the very favourable financing conditions that are still needed for a sustained return of inflation rates towards levels that are below, but close to, 2%. The recalibration of our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim, on account of the increasingly robust and broad-based economic expansion, an uptick in measures of underlying inflation and the continued effective pass-through of our policy measures to the financing conditions of the real economy. At the same time, domestic price pressures are still muted overall and the economic outlook and the path of inflation remain conditional on continued support from monetary policy. Therefore, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the additional net asset purchases, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates.
Let me now explain our assessment in greater detail, starting with theeconomic analysis. The economic expansion in the euro area continues to be solid and broad-based. Real GDP increased by 0.7%, quarter on quarter, in the second quarter of 2017, after 0.6% in the first quarter. The latest data and survey results point to unabated growth momentum in the second half of this year. Our monetary policy measures have facilitated the deleveraging process and continue to support domestic demand. Private consumption is underpinned by rising employment, which is also benefiting from past labour market reforms, and by increasing household wealth. The upswing in business investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Construction investment has also strengthened. In addition, the broad-based global recovery is supporting euro area exports.
Risks surrounding the euro area growth outlook remain broadly balanced. On the one hand, the strong cyclical momentum, as evidenced in recent developments in sentiment indicators, could lead to further positive growth surprises. On the other hand, downside risks continue to relate primarily to global factors and developments in foreign exchange markets.
Euro area annual HICP inflation remained unchanged at 1.5% in September. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to temporarily decline towards the turn of the year, mainly reflecting base effects in energy prices. At the same time, measures of underlying inflation have ticked up moderately since early 2017, but have yet to show more convincing signs of a sustained upward trend. Wage growth has increased somewhat, but domestic cost pressures still remain subdued overall. Underlying inflation in the euro area is expected to continue to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding gradual absorption of economic slack and rising wage growth.
Turning to themonetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.1% in September 2017, after 5.0% in August. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.7% in September 2017, up from 9.5% in August.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 2.5% in September 2017, after 2.4% in August, while the annual growth rate of loans to households remained stable at 2.7%. The euro area bank lending survey for the third quarter of 2017 indicates that net loan demand has continued to increase for all loan categories. Credit standards have further eased for loans to households, while they remained broadly unchanged for loans to enterprises. Banks’ overall terms and conditions on new loans have continued to ease for all categories of loans.
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.
To sum up, across-checkof the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to recalibrate the policy instruments to ensure the degree of monetary accommodation necessary to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation ofstructuralreformsin all euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regardingfiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Strengthening Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing discussions on further enhancing the institutional architecture of our Economic and Monetary Union.
The first question is about the composition. Did you discuss at the Governing Council meeting the composition of the APP starting from January, so the proportions of the different components?
The second question is about the alternative scenarios; what alternative scenarios did you discuss apart from the one that finally made the cut?
Draghi: No, we didn't discuss composition. There will be a press release, a press communique at 15:30 CET detailing more about – well, developing transparency and detailing more about the – how the asset purchase programme will evolve in 2017. But we didn't discuss really the composition. The only thing that I can say about that is that we will continue buying sizeable quantities of corporate bonds in the programme and then you get the rest, yes. Well, I can anticipate some of the things you're going to see shortly. So as of January 2018, the Eurosystem will publish ex ante the monthly redemption amounts for each component of the APP for the Eurosystem as a whole for the following rolling 12-month period. So the Eurosystem, as you know, conducts the reinvestments in a flexible and timely manner in the month they fall due or in the subsequent two months if needed.
Therefore net purchases per jurisdiction may fluctuate owing to the timing of these reinvestments. Reinvestments will take place in the same jurisdiction as principal redemptions with the aim to minimise deviations from the capital key. So you'll get the press release shortly after the press conference. But clearly, the press release would also devote some space to communicate in a transparent way how this reinvestment – which is becoming more and more important, of course – is going to be carried out.
We actually didn't discuss alternatives scenarios. The discussion was there were – let me say this; the atmosphere was pretty positive. All the Governing Council members in their interventions emphasised the better conditions, the growth momentum, as I just said unabated growth momentum and improving labour market conditions. They stressed how this number, seven million, almost seven million jobs in the last four years, it actually continues to increase. The labour market, the unemployment goes down. Both private consumption and private investment, which is also remarkable, because for a long time we haven't seen any significant upward trend in investment, is actually picking up. They emphasised how the earning capacity of households is increasing. So the real disposable income is actually increasing because – mostly because of gains coming from greater employment and how household wealth is increasing.
This also being supported of course by our monetary policy. So on inflation, of course this positive picture on the growth side is – on inflation is different because we – inflation is still not at our objective. We foresee 1.5% this year, 1.2% next year. As I said I think last time, too, we foresee a V-shaped profile of inflation mostly due to a base price effect of the oil, of energy, and then 1.5% the year after. So all this in the end converged on this scenario that I've just presented. Of course there was some difference of views on some aspects of this. But the scenario that was discussed this morning was the one I've just mentioned.
On the new guidance that you provide on reinvestment that they will continue for an extended period of time and for as long as necessary, could you explain a bit more of what you mean with as long as necessary? How this guidance interacts with the one on rates, is there a sequence? Are they for the same period of time, more or less?
A second question is on the guidance instead on QE. You said you are still ready to expand in size and duration the programme, if necessary. Is it still possible to expand in size? Do you still have room to expand the programme? Or do you foresee that there could be scarcity problems going ahead? In other words, how credible is this commitment to expand the size of QE if necessary?
Draghi: Now, the guidance on reinvestment is not related to rates. The sequence stays what it is, namely this – the interest rates will stay and they remain at their present – are expected to remain at their present levels for an extended period of time and well past the horizon of our net asset purchases. However as we moved forward not only this year but also in a previous years, the amounts that we've purchased, the stock has become more and more important. This year as we continue asset purchases, it will keep on increasing. So the commitment that the Eurosystem has taken today is that it will reinvest the principal payments for maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases and in any case, as long as necessary. So there isn't any specific link with interest rates. There is no link here.
Now, of course as I said I want to stress the importance of reinvestment. I'll never forget that in December 2015 in one of my press – usual periodic press conference like this, we announced a series of measures. We also said, 'Look, we are going to reinvest this.' Basically, there was no reaction, not at all. Not only that but it was actually considered to be totally marginal and in fact there were many sort of wrong estimates of what these potential reinvestments might be. Now, since then we bought a lot of bonds. So this stock now is sizeable and has become an important component of our – as we say here, this continued monetary support is provided by the additional net asset purchases by three elements. The sizeable stock of acquired assets and the forthcoming reinvestments, so the stock and the reinvestments, and by our forward guidance on interest rates. So the three elements interact, act together.
Now, on the flexibility, I think on the credibility, on the potential constraints, I think you've been asking – not you [personally]– been asking this question - “Will you make it?” - since the very beginning of the QE programme, or at least at regular intervals. Each time we gave plenty of evidence that both our design is flexible enough to cope with the potential limits, and we gave plenty of evidence that the Governing Council is committed to that. We didn't discuss parameters or limits, anything today.
I have a question also on reinvestment. So just looking at next year, come September and the official programme might end – I say might. Would reinvestments actually make up from the volume side for the normal QE? So my question is, in volumes how big are reinvestments? You must have calculated that.
Draghi: I don't have a number of that today, but you will get much information in the press release. Unless the Vice-President has a number on that, the investments will be carried out in a flexible way. The modalities of the reinvestment are going to be described in this first press release. But let me add just one other thing. We'll continue buying these, by the way, according to the present conditions until December. So as far as any clarification is concerned about the future, we have time until I would say December or even earlier.