Mr Duisenberg reports on the latest meeting of the ECB Governing Council on 4 March 1999  (Central Bank Articles and Speeches, 4 Mar 99)
Central bank: ecb | Type: speech | Date: 1999-03-04

## Mr Duisenberg reports on the latest meeting of the ECB Governing Council on 4 March 1999Introductory statement by the President of the European Central Bank, Mr W F Duisenberg, press conference in Frankfurt/Main on 4/3/99.Ladies and gentlemen, the Vice-President and I are here today to report on the outcome o meetings of the Governing Council and of the General Council of the European Central Bank.Let

me

start

with

the

Governing

Council's

discussion

on

recent

economic

developments

an decisions that the Governing Council has taken today in the field of monetary policy.After

a

comprehensive

and

careful

examination

of

recent

trends

and

ongoing

evaluations economic outlook for the euro area economy, there was consensus that some of the risks id earlier, in particular with regard to real GDP growth, had materialised in the fourth quar There was also consensus that the impact of these developments on the balance of risks stability would need to be examined further in the context of the monetary policy strategy the Eurosystem.

At this juncture, taking into account all the information available, the Council confirmed its earlier assessment of the outlook for price stability.

Against this b decided that for the main refinancing operations to be settled on 10 and 17 March 1999 conditions will apply as for the previous one, i.e. they will be fixed rate tenders con interest rate of 3.0%.

In addition, the interest rate on the marginal lending facility will 4.5% and the interest rate on the deposit facility will remain 2.0%.Let me report in some more detail on the Governing Council's deliberations, and thereby explanations for the decisions we took today.Starting with the monetary developments in the euro area at the start of Stage Three of broad monetary aggregate M3 expanded at an annual rate of 5.7% in January 1999, against 4 December 1998.

This upturn was largely due to an acceleration in overnight deposits.

This may be explained by the low level of interest rates, which also contributed to credit to sector to accelerate further in January 1999 to 9.4% which is particularly notable as othe of the economy are signalling a slowdown in activity.Monthly data on monetary aggregates can be volatile.

M3 growth is therefore monitored on th of three-month moving averages of the 12-month growth rate of M3, which

stood

at

4.9%

i period from November 1998 to January 1999.

This was 0.2 percentage point higher than the recorded in the previous three-month period and is 0.4 percentage point above the referenc 4½%.

Against this background and in view of the uncertainty relating to special factors pe the

changeover

to

the

Stage

Three

environment

and

the

introduction

of

the

euro,

the

Go Council does not consider the acceleration of M3 at the start of Stage Three as a signa inflationary pressures.

However, a close monitoring of monetary developments in the coming remains necessary to give more conclusive evidence of the underlying causes and the perma temporary nature of the rise in M3 growth.Turning to financial indicators, euro area capital markets underwent a correction in Febru was mainly linked to spillovers from the United States and Japan.

This followed a decline term interest rates in January which had brought bond yields in the euro area to the lowest since the late 1940s.

The euro area yield curve shifted upwards across the entire maturit during February.

Let me also point out that the nominal effective exchange rate of the eu early March stood around 1% below its level on 1 February and around 4% below its starting 4 January 1999.At the same time, recent developments appear to have led to a reduction in some of the unc surrounding

the

evolution

of

the

world

economy

in

1999.

This

mainly

relates

to

theperformance of the US economy, but may also be due to signs of improvement in the real economie of some Asian countries.

Nevertheless, in the view of the Governing Council, it is too early for favourable

assessment

of

the

external

environment

for

the

euro

area.

Risks

pertaining

to

ext imbalances,

continuing

risk

aversion

and

the

corresponding

weakness

of

private

long-term

capi flows and real investment to emerging market economies will need to be examined closely.In the euro area the latest indicators confirm that those risks which were identified earlier h materialised to some extent.

According to preliminary and incomplete data from national sources, GDP

growth

in

the

euro

area

weakened

in

the

fourth

quarter

of

1998

when

compared

with

the previous

quarter.

While

more

precise

estimates

will

soon

become

available

from

Eurostat,

t evidence available suggests that activity in the euro area has been slowing down in recent mo This is particularly apparent in the production of the manufacturing sector, where output in the quarter of 1998 fell by almost 1% compared with the previous quarter.

These developments broadl confirm the pattern observed earlier in industrial confidence, which was on a declining trend second half of 1998.

The latest data on industrial confidence in the euro area, i.e. those rel the

European

Commission

today,

indicate

that

industrial

confidence

has

weakened

further.

Som recent wage developments in the euro area might have contributed to that.

The level of unemployme has remained more or less unchanged over the past four months.

Finally, consumer confidence in t euro area has remained unchanged from the high levels seen at the beginning of the year.

With re to capacity utilisation in the manufacturing sector, which fell further in the fourth quarter of retail sales, which up to November 1998 pointed towards broadly sustained growth, no new data a yet available.Overall, with regard to the cyclical situation, recent data confirm our earlier expectations t are still downside risks for output growth.

The Governing Council will continue its thorough ana and

very

close

monitoring

of

underlying

trends

and

review

its

broad

outlook

for

the

euro accordingly on an ongoing basis, taking into account in a forward-looking manner the impact of b domestic and external developments.With

regard

to

the

latest

data

on

the

Harmonised

Index

of

Consumer

Prices

(HICP),

the

annua increase for January 1999 was 0.8%, which is unchanged compared with the previous two months (taking account of the most recent revisions).

Looking at a breakdown of the HICP, a slight decl the rate of increase in service prices (from 1.9% in December 1998 to 1.8% in January 1999) w offset by a slight increase in goods prices (from 0.1% to 0.2%).

The fall in the rate of ch services prices was mainly due to lower price increases for transport and communications; this have

been

a

reflection

of

increased

competition

in

these

sectors.

On

the

other

hand,

downw pressure from energy prices on goods prices diminished somewhat.On balance, the current data continue to suggest that there are no significant upward or down pressures on prices in the short term.

The pattern of risks to price stability has also remaine unchanged on balance.

On the upward side, wage developments are a matter of concern, as would be any loosening of fiscal policies and the implications of this for achieving the objectives laid the Stability and Growth Pact.

In addition, recent exchange rate trends need to be monitored cl also in terms of their impact on prices.

Concerning downward risks, in particular the slowdown i euro area economy is a cause for concern.

In conclusion, taking the latest available evidence account, at today's meeting the Governing Council confirmed its assessment regarding the outlook price developments.

The Governing Council therefore decided to keep ECB interest rates unchange at the levels currently prevailing.I should now like to inform you about some other matters considered today.The

auction

technique

for

the

longer-term

refinancing

operations

was

reviewed

by

the

Governin Council

today.

In

its

first

two

longer-term

refinancing

operations

(settled

on

14

January

a February 1999), which are as a rule conducted by means of variable rate tenders, the Eurosysapplied the single rate ('Dutch') method of allotment.

The single rate method was chosen in encourage less experienced counterparties to participate in the tender.

The Governing Coun the view that all interested counterparties should by now be sufficiently accustomed to term refinancing operation also to be in a position to participate in this type of operat more market-oriented multiple rate ('American') method of allotment.

Against this backgrou Governing Council has decided that the multiple rate method of allotment will be applied from the next longer-term refinancing operation (to be settled on 25 March 1999), until indicated.Finally, let me inform you that the General Council today discussed the monetary policie central banks of the non-participating Member States against the background of the monetar set by the Eurosystem.

As you will know, the General Council

has

taken

over

those

tasks European Monetary Institute (EMI) which still have to be performed during Stage Three beca the derogations of some Member States.

One of these tasks relates to strengthening the co-o of the monetary

policies

in

the

Community

with

the

aim

of

ensuring

price

stability.

The Council intends to conduct these co-ordination exercises biannually in future.