Christine Lagarde: ECB press conference - introductory statement
Introductory statement by Ms Christine Lagarde, President of the European Central Bank, and Mr
Luis de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 10 June
2021.
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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 the meeting of the Governing Council, which
was also attended by the Commission Executive Vice-President, Mr Dombrovskis.
After the contraction in the first quarter of the year, the euro area economy is gradually reopening
as the pandemic situation improves and vaccination campaigns make significant progress. The
latest data signal a bounce-back in services activity and ongoing dynamism in manufacturing
production. We expect economic activity to accelerate in the second half of this year as further
containment measures are lifted. A pick-up in consumer spending, strong global demand and
accommodative fiscal and monetary policies will lend crucial support to the recovery. At the
same time, uncertainties remain, as the near-term economic outlook continues to depend on the
course of the pandemic and on how the economy responds after reopening. Inflation has picked
up over recent months, largely on account of base effects, transitory factors and an increase in
energy prices. It is expected to rise further in the second half of the year, before declining as
temporary factors fade out. Our new staff projections point to a gradual increase in underlying
inflation pressures throughout the projection horizon, although the pressures remain subdued in
the context of still significant economic slack that will only be absorbed gradually over the
projection horizon. Headline inflation is expected to remain below our aim over the projection
horizon.
Preserving favourable financing conditions over the pandemic period remains essential to reduce
uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding
medium-term price stability. Financing conditions for firms and households have remained
broadly stable since our monetary policy meeting in March. However, market interest rates have
increased further. While partly reflecting improved economic prospects, a sustained rise in
market rates could translate into a tightening of wider financing conditions that are relevant for the
entire economy. Such a tightening would be premature and would pose a risk to the ongoing
economic recovery and the outlook for inflation.
Against this background, the Governing Council decided to confirm its very accommodative
monetary policy stance.
We will keep the key ECB interest rates unchanged. We expect them to remain at their present
or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently
close to, but below, 2 per cent within our projection horizon, and such convergence has been
consistently reflected in underlying inflation dynamics.
We will continue to conduct net asset purchases under the pandemic emergency purchase
programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022
and, in any case, until the Governing Council judges that the coronavirus crisis phase is over.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing
Council expects net purchases under the PEPP over the coming quarter to continue to be
conducted at a significantly higher pace than during the first months of the year.
We will purchase flexibly according to market conditions and with a view to preventing a
tightening of financing conditions that is inconsistent with countering the downward impact of the
pandemic on the projected path of inflation. In addition, the flexibility of purchases over time,
across asset classes and among jurisdictions will continue to support the smooth transmission
of monetary policy. If favourable financing conditions can be maintained with asset purchase
flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope
need not be used in full. Equally, the envelope can be recalibrated if required to maintain
favourable financing conditions to help counter the negative pandemic shock to the path of
inflation.
We will continue to reinvest the principal payments from maturing securities purchased under
the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will
be managed to avoid interference with the appropriate monetary policy stance.
Net purchases under our asset purchase programme (APP) will continue at a monthly pace of
€20 billion. We continue to expect monthly net asset purchases under the APP to run for as long
as necessary to reinforce the accommodative impact of our policy rates, and to end shortly
before we start raising the key ECB interest rates.
We also intend to continue reinvesting, in full, the principal payments from maturing securities
purchased under the APP for an extended period of time past the date when we start raising the
key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity
conditions and an ample degree of monetary accommodation.
Finally, we will continue to provide ample liquidity through our refinancing operations. The funding
obtained through the third series of targeted longer-term refinancing operations (TLTRO III) plays
a crucial role in supporting bank lending to firms and households.
Our measures help to preserve favourable financing conditions for all sectors of the economy,
which is needed for a sustained economic recovery and for safeguarding price stability. We will
also continue to monitor developments in the exchange rate with regard to their possible
implications for the medium-term inflation outlook. We stand ready to adjust all of our
instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained
manner, in line with our commitment to symmetry.
Let me now explain our assessment in greater detail, starting with the economic analysis. In the
first quarter of the year, euro area real GDP declined further, by 0.3 per cent, to stand 5.1 per
cent below its pre-pandemic level of the fourth quarter of 2019. Business and consumer surveys
and high-frequency indicators point to a sizeable improvement in activity in the second quarter of
this year.
Business surveys indicate a strong recovery in services activity as infection numbers decline,
which will allow a gradual normalisation of high-contact activities. Manufacturing production
remains robust, supported by solid global demand, although supply-side bottlenecks could pose
some headwinds for industrial activity in the near term. Indicators of consumer confidence are
strengthening, suggesting a strong rebound in private consumption in the period ahead.
Business investment shows resilience, despite weaker corporate balance sheets and the still
uncertain economic outlook.
We expect growth to continue to improve strongly in the second half of 2021 as progress in
vaccination campaigns allows a further relaxation of containment measures. Over the medium
term, the recovery in the euro area economy is expected to be buoyed by stronger global and
domestic demand, as well as by continued support from both monetary policy and fiscal policy.
This assessment is broadly reflected in the baseline scenario of the June 2021 Eurosystem staff
macroeconomic projections for the euro area. These projections foresee annual real GDP
growth at 4.6 per cent in 2021, 4.7 per cent in 2022 and 2.1 per cent in 2023. Compared with the
March 2021 ECB staff macroeconomic projections, the outlook for economic activity has been
revised up for 2021 and 2022, while it is unchanged for 2023.
Overall, we see the risks surrounding the euro area growth outlook as broadly balanced. On the
one hand, an even stronger recovery could be predicated on brighter prospects for global
demand and a faster-than-anticipated reduction in household savings once social and travel
restrictions have been lifted. On the other hand, the ongoing pandemic, including the spread of
virus mutations, and its implications for economic and financial conditions continue to be
sources of downside risk.
According to Eurostat's flash release, euro area annual inflation increased from 1.3 per cent in
March to 1.6 per cent in April and 2.0 per cent in May 2021. This rise was due mainly to a strong
increase in energy price inflation, reflecting both sizeable upward base effects as well as
monthon-month increases, and, to a lesser extent, a slight increase in non-energy industrial goods
inflation. Headline inflation is likely to increase further towards the autumn, reflecting mainly the
reversal of the temporary VAT reduction in Germany. Inflation is expected to decline again at the
start of next year as temporary factors fade out and global energy prices moderate.
We expect underlying price pressures to increase somewhat this year owing to temporary
supply constraints and the recovery in domestic demand. Nevertheless, the price pressures will
likely remain subdued overall, in part reflecting low wage pressures, in the context of still
significant economic slack, and the appreciation of the euro exchange rate.
Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by
accommodative monetary and fiscal policies, will contribute to a gradual increase in underlying
inflation over the medium term. Survey-based measures and market-based indicators of
longerterm inflation expectations remain at subdued levels, although market-based indicators have
continued to increase.
This assessment is broadly reflected in the baseline scenario of the June 2021 Eurosystem staff
macroeconomic projections for the euro area, which foresees annual inflation at 1.9 per cent in
2021, 1.5 per cent in 2022 and 1.4 per cent in 2023. Compared with the March 2021 ECB staff
macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022,
largely owing to temporary factors and higher energy price inflation. It is unchanged for 2023, as
the increase in underlying inflation is largely counterbalanced by an expected decline in energy
price inflation. HICP inflation excluding energy and food is projected to increase from 1.1 per cent
in 2021 to 1.3 per cent in 2022 and 1.4 per cent in 2023, revised up throughout the projection
horizon compared with the March 2021 projection exercise.
Turning to the monetary analysis, the annual growth rate of broad money (M3) declined to 9.2
per cent in April 2021, from 10.0 per cent in March and 12.3 per cent in February. The
deceleration in March and April was due partly to strong negative base effects as the large
inflows in the initial phase of the pandemic crisis dropped out of the annual growth statistics. It
also reflects a moderation in shorter-term monetary dynamics, mainly originating from weaker
developments in deposits by households and firms in April and lower liquidity needs as the
pandemic situation improves. The ongoing asset purchases by the Eurosystem continue to be
the largest source of money creation. While also decelerating, the narrow monetary aggregate
M1 has remained the main contributor to broad money growth. Its strong contribution is
consistent with a still heightened preference for liquidity in the money-holding sector and a low
opportunity cost of holding the most liquid forms of money.
The annual growth rate of loans to the private sector declined to 3.2 per cent in April, from 3.6 per
cent in March and 4.5 per cent in February. This decline took place amid opposing dynamics in
lending to non-financial corporations and to households. The annual growth rate of loans to
nonfinancial corporations fell to 3.2 per cent in April, after 5.3 per cent in March and 7.0 per cent in
February. The contraction reflects large negative base effects and some frontloading in loan
creation in March relative to April. The annual growth rate of loans to households rose to 3.8 per
cent in April, after 3.3 per cent in March and 3.0 per cent in February, supported by solid monthly
flows and positive base effects.
Overall, our policy measures, together with the measures adopted by national governments and
other European institutions, remain essential to support bank lending conditions and access to
financing, in particular for those most affected by the pandemic.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming
from the monetary analysis confirmed that an ample degree of monetary accommodation is
necessary to support economic activity and the robust convergence of inflation to levels that are
below, but close to, 2 per cent over the medium term.
Regarding an ambitious and coordinated fiscal stance remains crucial, as a
fiscal policies,
premature withdrawal of fiscal support would risk weakening the recovery and amplifying the
longer-term scarring effects. National fiscal policies should thus continue to provide critical and
timely support to the firms and households most exposed to the ongoing pandemic and the
associated containment measures. At the same time, fiscal measures should remain temporary
and countercyclical, while ensuring that they are sufficiently targeted in nature to address
vulnerabilities effectively and to support a swift recovery in the euro area economy. The three
safety nets endorsed by the European Council for workers, businesses and governments
provide important funding support.
The Governing Council reiterates the key role of the Next Generation EU package. It calls on
Member States to deploy the funds productively, accompanied by productivity-
enhancing structural policies. This would allow the Next Generation EU programme to
contribute to a faster, stronger and more uniform recovery and would increase economic
resilience as well as the growth potential of Member States' economies. In doing so, the
programme would support the effectiveness of monetary policy in the euro area. Such structural
policies are particularly important in improving economic structures and institutions and in
accelerating the green and digital transitions.
We are now ready to take your questions.