European Central Bank: Press conference - introductory statement
Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank,
and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main,
13 January 2011.
* * *
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our
press conference. Let me wish you all a very Happy New Year. I would also like to take this
opportunity to welcome Estonia as the seventeenth country to adopt the euro as its currency.
Accordingly, Mr Lipstok, the Governor of Eesti Pank, became a member of the Governing
Council on 1 January 2011. Following the adoption of the euro by Estonia there are now
331 million citizens using the euro as their currency. We will now report on the outcome of
today's meeting, which was also attended by Commissioner Rehn.
Based on its regular economic and monetary analyses, the Governing Council confirmed that
the current key ECB interest rates still remain appropriate. It therefore decided to leave
them unchanged. Taking into account all the new information and analyses which have
become available since our meeting on 2 December 2010, we see evidence of short-term
upward pressure on overall inflation, mainly owing to energy prices, but this has not so far
affected our assessment that price developments will remain in line with price stability over
the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent
economic data are consistent with a positive underlying momentum of economic activity,
while uncertainty remains elevated. Our monetary analysis indicates that inflationary
pressures over the medium term should remain contained. Overall, we expect price stability
to be maintained over the medium term, thereby supporting the purchasing power of euro
area households. Inflation expectations remain firmly anchored in line with our aim of
keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of
inflation expectations is of the essence.
Overall, the current monetary policy stance remains accommodative. The stance, the
provision of liquidity and the allotment modes will be adjusted as appropriate, taking into
account the fact that all the non-standard measures taken during the period of acute financial
market tensions are, by construction, temporary in nature. Accordingly, the Governing
Council will continue to monitor all developments over the period ahead very closely.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of
2010, recent statistical releases and survey-based evidence confirm that the positive
underlying momentum of economic activity in the euro area remained in place towards the
end of 2010. Looking ahead at 2011, euro area exports should benefit from a continued
recovery in the world economy. At the same time, and particularly taking into account the
relatively high level of business confidence in the euro area, private sector domestic demand
should increasingly contribute to growth, supported by the accommodative monetary policy
stance and the measures adopted to restore the functioning of the financial system.
However, the recovery in activity is expected to be dampened by the process of balance
sheet adjustment in various sectors.
In the Governing Council's assessment, the risks to this economic outlook are still slightly
tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade
may continue to grow more rapidly than expected, thereby supporting euro area exports.
Moreover, strong business confidence could provide more support to domestic economic
activity in the euro area than is currently expected. On the other hand, downside risks relate
to the tensions in some segments of the financial markets and their potential spillover to the
euro area real economy. Further downside risks relate to renewed increases in oil and other
commodity prices, protectionist pressures and the possibility of a disorderly correction of
global imbalances.
With regard to price developments, euro area annual HICP inflation was 2.2% in December,
according to Eurostat's flash estimate, after 1.9% in November. This was somewhat higher
than expected and largely reflects higher energy prices. Looking ahead to the next few
months, inflation rates could temporarily increase further. They are likely to stay slightly
above 2%, largely owing to commodity price developments, before moderating again towards
the end of the year. Overall, we see evidence of short-term upward pressure on overall
inflation, stemming largely from global commodity prices. While this has not so far affected
our assessment that price developments will remain in line with price stability over the
policyrelevant horizon, very close monitoring of price developments is warranted. Inflation
expectations over the medium to longer term continue to be firmly anchored in line with the
Governing Council's aim of keeping inflation rates below, but close to, 2% over the medium
term.
Risks to the medium-term outlook for price developments are still broadly balanced but could
move to the upside. Upside risks relate, in particular, to developments in energy and
nonenergy commodity prices. Furthermore, increases in indirect taxes and administered prices
may be greater than currently expected, owing to the need for fiscal consolidation in the
coming years, and price pressures in the production chain could rise further. On the
downside, risks relate mainly to the impact on inflation of potentially lower growth, given the
prevailing uncertainties.
Turning to the monetary analysis, the annual growth rate of M3 increased to 1.9% in
November 2010, after 0.9% in October. This strong increase is in part related to base effects
and volatile factors. The annual growth rate of loans to the private sector also increased,
rising to 2.0% in November from 1.5% in October. Looking beyond the special factors that
operated in November, broad money and loan growth is still low, corroborating the
assessment that the underlying pace of monetary expansion is moderate and that inflationary
pressures over the medium term should remain contained.
The interest rate constellation continued to exert a significant impact on the growth of
monetary aggregates. Looking at M3 components, the interest rates paid on short-term time
deposits remained higher than those paid on overnight deposits. As a result, annual
M1 growth continued to moderate, standing at 4.6% in November 2010, while the annual
growth rate of other short-term deposits continued to become less negative. At the same
time, the yield curve has lately become steeper again, implying that the attractiveness of
short-term deposits included in M3 has declined somewhat compared with more highly
remunerated longer-term assets outside M3.
The annual growth rate of bank loans to the private sector continued to increase in
November, partly owing to special factors. At the sectoral level, this strengthening
increasingly reflects the upward movement in the growth of loans to non-financial
corporations, which stood at -0.1% in November, after -0.5% in October, thereby further
confirming that a turning point was reached in the course of 2010. The growth of loans to
households remained stronger, at 2.7% in November after 2.9% in October, but the latest
data point to some signs of a levelling-off.
Over the past few months banks have expanded the provision of credit to the private sector
in an environment in which the overall size of their balance sheets has remained broadly
stable. The challenge remains to expand the availability of such credit when demand picks
up further. To address this challenge, where necessary, it is essential for banks to retain
earnings, to turn to the market to strengthen further their capital bases or to take full
advantage of government support measures for recapitalisation.
To sum up, the current key ECB interest rates still remain appropriate. We therefore decided
to leave them unchanged. Taking into account all the new information and analyses which
have become available since our meeting on 2 December 2010, we see evidence of short-
term upward pressure on overall inflation, mainly owing to energy prices, but this has not so
far affected our assessment that price developments will remain in line with price stability
over the policy-relevant horizon. At the same time, very close monitoring is warranted.
Recent economic data are consistent with a positive underlying momentum of economic
activity, while uncertainty remains elevated. A cross-check of the outcome of our economic
analysis with that of the monetary analysis indicates that inflationary pressures over the
medium term should remain contained. Overall, we expect price stability to be maintained
over the medium term, thereby supporting the purchasing power of euro area households.
Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates
below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is
of the essence.
Turning to fiscal policies, in view of the ongoing vulnerability to adverse market reactions,
countries need to do their utmost to meet their deficit targets and put government
debt-toGDP ratios firmly on a downward trajectory. In this regard, the Governing Council takes note
of the recently announced measures in some euro area countries to reduce their very large
fiscal imbalances. Where necessary, additional corrective measures - preferably on the
expenditure side - need to be swiftly defined and implemented. At the same time, all euro
area countries should pursue ambitious and credible multi-year consolidation strategies. This
will help to strengthen confidence in the sustainability of public finances, reduce risk premia
in interest rates and improve the conditions for sound and sustainable growth. Any positive
fiscal developments that may emerge, reflecting factors such as a more favourable than
expected economic environment, should be exploited to make faster progress with fiscal
consolidation.
Substantial and far-reaching structural reforms, complementing fiscal adjustment, should
be rapidly implemented to enhance the prospects for higher sustainable growth. Major
reforms are particularly necessary in those countries that have experienced a loss of
competitiveness in the past or that are suffering from high fiscal and external deficits. The
removal of labour market rigidities would further support the adjustment process of these
economies. Increasing product market competition, particularly in the services sectors, would
also facilitate the restructuring of the economy and encourage innovation. Such measures
are crucial for enhancing productivity growth, which is one of the main drivers of long-term
growth. All these structural reforms should be supported by the necessary improvements in
the structure of the banking sector. Sound balance sheets, effective risk management and
transparent, robust business models remain key to strengthening banks' resilience to shocks
and to ensuring adequate access to finance, thereby laying the foundations for sustainable
growth and financial stability.
We are now at your disposal for questions.