PRESS CONFERENCE
Central bank: ecb | Type: press_conference | Date: 2017-12-14

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 President of the Eurogroup, Mr Dijsselbloem, and by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we decided to keep thekey ECB interest ratesunchanged. 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.
Regardingnon-standard monetary policy measures, we confirm that from January 2018 we intend to continue to make net asset purchases under the asset purchase programme (APP), 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. 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.
Our monetary policy decisions have preserved 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 incoming information, including our new staff projections, indicates a strong pace of economic expansion and a significant improvement in the growth outlook. The strong cyclical momentum and the significant reduction of economic slack give grounds for greater confidence that inflation will converge towards our inflation aim. At the same time, domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend. An ample degree of monetary stimulus therefore 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 that we decided on at our October monetary policy meeting, 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 continued in the third quarter of 2017, when real GDP increased by 0.6% quarter on quarter, after 0.7% in the second quarter. The latest data and survey results point to solid and broad-based growth momentum. Our monetary policy measures, which have facilitated the deleveraging process, continue to support domestic demand. Private consumption is underpinned by ongoing employment gains, which are also benefiting from past labour market reforms, and by rising household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and strengthening demand. Housing investment has also risen further over recent quarters. In addition, euro area exports are being supported by the broad-based global expansion.
This assessment is broadly reflected in the December 2017 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.4% in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020. Compared with the September 2017 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised up substantially.
Risks surrounding the euro area growth outlook remain broadly balanced. On the one hand, the strong cyclical momentum, underpinned by continued positive developments in sentiment indicators, could lead to further positive growth surprises in the near term. On the other hand, downside risks continue to relate primarily to global factors and developments in foreign exchange markets.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in November, up from 1.4% in October. At the same time, measures of underlying inflation have moderated somewhat recently, in part owing to special factors. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to moderate in the coming months, mainly reflecting base effects in energy prices, before increasing again. Underlying inflation is expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.
This assessment is also broadly reflected in the December 2017 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2017, 1.4% in 2018, 1.5% in 2019 and 1.7% in 2020. Compared with the September 2017 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up, mainly reflecting higher oil and food prices.
Turning to themonetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.0% in October 2017, from 5.2% in September, reflecting the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 continued to be the main contributor to broad money growth, expanding at an annual rate of 9.4% in October, after 9.8% in September.
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 2.9% in October 2017, after 2.4% in September, while the annual growth rate of loans to households remained stable at 2.7%.
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 for an ample degree of monetary accommodation 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 ofstructural reformsin 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, the increasingly solid and broad-based expansion strengthens the case for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. 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 completing the banking union and the capital markets union, and on further enhancing the institutional architecture of our Economic and Monetary Union.
Given that you see inflation at 1.7% in 2020, do you consider that sufficient progress on inflation in the medium term? Does that in any way affect your current plans for the asset purchase programme?
My second question is on the corporate sector purchases. You said in October that they would remain sizeable. Were any further details decided in that regard? Could you clarify whether that might mean that we will see the same amount of corporate bonds being purchased? Or will simply the proportion in the overall programme be higher?
Draghi: The answer to the second question is: I can't elaborate. It remains sizeable. We haven't discussed that today. So the terms of language will remain the same as last time. On the first question, by and large the overall discussion today reflected the increasing confidence that we have in the convergence of inflation towards a self-sustained inflation path in the medium term and towards our objective. Generally speaking, the growth news is very positive; I can elaborate on that. So all in all, the revision in the macroeconomic projections goes in the right direction.
A follow-up question on when, do you reckon, will you give us more of an idea of what the QE programme or the asset purchase programme will look like after September? There is much speculation it could be as late as July, perhaps June; perhaps you already have a vision or an idea. Second question would be on whether you had in the Governing Council, or you yourself, thoughts about what it means that the ultra-loose monetary policy stance is most likely still in place when we see the economy cooling down once again, meaning that you could be left with not a lot of ammunition as a central bank to counter an economic downturn i.e. a reduced trend of inflation. What's your idea here?
Draghi: The second question, I cannot answer that: we haven't discussed that. Frankly, it doesn't seem likely today. Actually in a sense it seems even more a remote possibility than it would have been a year ago or even six months ago.
But on the other point, if we go through the statement I just made, just let me go step by step. First of all the forward guidance on interest rate is unchanged. We say we continue to expect interest rates to remain at the present level for an extended period of time and well past the horizon of our net asset purchases. Second, we confirm that from January 2018 we intend to continue to make the net asset purchases under the asset purchase programme 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 – et cetera – so there isn't any change in the language or intentions. Third, quite important, the Eurosystem will reinvest the principal payments from maturing securities purchased for an extended period of time after the end of the net asset purchases and in any case as long as necessary.
Then we add the considerations on inflation where, even though the situation on growth has improved – and by the way: will continue to improve – has improved more than expected and will continue to improve, that's what all sentiment indicators say and also our staff projections say. The news on inflation remains somewhat muted. We say price pressures remain muted and have yet to show convincing signs on a sustained upward trend. So the conclusion is: an ample degree of monetary stimulus therefore remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. So, no change all throughout.
Did you discuss cutting the link in your guidance between the APP and inflation and what is your view on that question?
Secondly, on the 1.7% inflation prognosis, do you maintain what you said last year that 1.7% is not really in line with the target?
Draghi: First of all, we didn't discuss cutting the link. That was not discussed. It's probably worthwhile spending a word on that. As you noticed, we haven't used the word recovery; we use the word expansion. As the economic expansion gains further strength and keeps on broadening, naturally the stimulus will come. We said that in the introductory statement; it will come from all the elements of the package. Therefore, as a consequence, also the component coming from the forward guidance of interest rates will gain further and further importance. So this is a natural process led by the recovery. In this sense our monetary policy accompanies the recovery, as I had chance to say in a speech some time ago. But we haven't discussed cutting the link, no. We aren't there.
Now, the other point is 1.7%. Well, see, we defined it; the answer is, it's close but below 2%. How close is it? The issue here is more how strong is the convergence path towards a self-sustained and sustainable inflation rate which is close to but below 2% in the medium term. The developments that we are witnessing in the real economy certainly increase our confidence for an output gap that will get closed in the course of the next year and improving conditions in the labour markets, which in due time should increase pressure on nominal wages. As you know, that has been one of the variables we've been looking more at as one of the drivers of the underlying inflation and therefore one of the drivers for a sustained progress in headline inflation.
Given the favourable economic outlook and also given the revisions for growth – which is significant, which you mentioned – will you permanently review the APP while it is running? Or are the volumes and duration of the programme, let's say, carved in stone at least until September next year?
My second question is also on the APP. Has there been again the discussion today about the open-ended design of the APP?
Draghi: Yes, actually it's one question, really. The programme has been discussed, designed and decided upon a month-and-a-half ago. Today the issue was not discussed at all. That is what stands in place both as far as the size, the volumes, the timing and the open-endedness of the programme.