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,
10 June 2010.
* * *
Ladies and gentlemen, Mr Constâncio, the new Vice-President of the ECB, and I are very
pleased to welcome you to our press conference. 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 decided to
leave the unchanged. The current rates remain appropriate. Taking
key ECB interest rates
into account all the new information which has become available since our meeting on
6 May 2010, we continue to expect price developments to remain moderate over the
policyrelevant medium-term horizon. Global inflationary pressures may persist, while domestic
price pressures are expected to remain low. The latest information has also confirmed that
the economic recovery in the euro area continued in the first half of 2010, but quarterly
growth rates are likely to be rather uneven. Looking ahead, we expect the euro area
economy to grow at a moderate pace, in an environment of continued tensions in some
financial market segments and of unusually high uncertainty. Our monetary analysis confirms
that inflationary pressures over the medium term remain contained, as suggested by weak
money and credit growth. 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 remains of
the essence.
Monetary policy will do all that is needed to maintain price stability in the euro area over the
medium term. This is the necessary and central contribution that monetary policy makes to
fostering sustainable economic growth, job creation and financial stability. All the
nonstandard measures taken during the period of strong financial market tensions, referred to as
"enhanced credit support" and the Securities Markets Programme, are fully consistent with
our mandate and, by construction, temporary in nature. We remain firmly committed to price
stability over the medium to longer term, and the monetary policy stance and the overall
provision of liquidity will be adjusted as appropriate. 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.
After a period of sharp decline, euro area economic activity has been expanding since
mid2009. According to Eurostat's first estimate, euro area real GDP increased, on a quarterly
basis, by 0.2% in the first quarter of 2010. While adverse weather conditions, in particular,
dampened growth in the early part of the year, the latest economic indicators suggest that a
rebound took place during the spring. Looking ahead, the Governing Council expects real
GDP to grow at a moderate and still uneven pace over time and across economies and
sectors of the euro area. The ongoing recovery at the global level and its impact on the
demand for euro area exports, together with the accommodative monetary policy stance and
the measures adopted to restore the functioning of the financial system, should provide
support to the euro area economy. However, the recovery of activity is expected to be
dampened by the process of balance sheet adjustment in various sectors and weak labour
market prospects.
This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic
projections for the euro area, according to which annual real GDP growth will range between
0.7% and 1.3% in 2010 and between 0.2% and 2.2% in 2011. Compared with the
March 2010 ECB staff macroeconomic projections, the range for real GDP growth this year
has been revised slightly upwards, owing to the positive impact of stronger activity worldwide
in the short run, while the range has been revised somewhat downwards for 2011, reflecting
mainly domestic demand prospects. The June 2010 Eurosystem staff projections are broadly
in line with forecasts by international organisations.
In the Governing Council's assessment, the risks to the economic outlook are broadly
balanced, in an environment of unusually high uncertainty. On the upside, the global
economy and foreign trade may recover more strongly than projected, thereby further
supporting euro area exports. On the downside, concerns remain relating to renewed
tensions in some financial market segments and related confidence effects. In addition, a
stronger or more protracted than expected negative feedback loop between the real
economy and the financial sector, renewed increases in oil and other commodity prices, and
protectionist pressures, as well as the possibility of a disorderly correction of global
imbalances, may weigh on the downside.
With regard to price developments, euro area annual HICP inflation was 1.6% in May 2010,
according to Eurostat's flash estimate, after 1.5% in April. The rise in inflation over recent
months mostly reflects higher energy prices. During the second half of this year some further
slight increases in HICP inflation cannot be excluded. Looking further ahead, inflation rates
should overall remain moderate. Upward pressures on commodity prices may persist, while
euro area domestic price pressures are expected to remain low. 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.
This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic
projections for the euro area, which foresee annual HICP inflation in a range between 1.4%
and 1.6% for 2010 and between 1.0% and 2.2% for 2011. Compared with the ECB staff
projections of March 2010, the ranges have been adjusted somewhat upwards, mainly
reflecting higher euro prices for commodities. Available forecasts from international
organisations provide a broadly similar picture.
Risks to the outlook for price developments are broadly balanced. Upside risks over the
medium term relate, in particular, to the evolution of commodity prices. Furthermore,
increases in indirect taxation and administered prices may be greater than currently
expected, owing to the need for fiscal consolidation in the coming years. At the same time,
risks to domestic price and cost developments are contained. Overall, the Governing Council
will monitor closely the future evolution of all available price indicators.
Turning to the the annual growth rate of M3 was unchanged at -0.1% in
monetary analysis,
April 2010. The annual growth rate of loans to the private sector increased somewhat further
and turned positive, but remained weak at 0.1%. Together, these data continue to support
the assessment that the underlying pace of monetary expansion is moderate and that
inflationary pressures over the medium term are contained. Shorter-term developments in
M3 and loans have remained volatile and, given the renewed tensions in some financial
market segments, volatility in M3 and its components may well continue.
The actual growth in M3 continues to understate the underlying pace of monetary expansion,
but the downward impact of the rather steep yield curve and the associated allocation of
funds to longer-term deposits and securities outside M3 appear to be gradually waning. The
same holds for the shifts within M3 that have been observed as a response to the narrow
spreads between the interest rates paid on different M3 instruments. At 10.7%, annual M1
growth is still very strong.
The still weak annual growth rate of bank loans to the private sector conceals the fact that
monthly flows have now been positive for a number of months. At the same time, these
aggregate developments continue to reflect mainly an ongoing strengthening in the annual
growth of loans to households, while the annual growth of loans to non-financial corporations
has remained negative. A lagged response of loans to non-financial corporations to
economic activity is a normal feature of the business cycle.
The latest data confirm that the reduction in the size of banks' overall balance sheets has not
continued since the turn of the year. However, further adjustments cannot be ruled out and
the challenge remains for banks to expand the availability of credit to the non-financial sector
when demand picks up. To address this challenge, banks should turn to the market to
strengthen further their capital bases and, where necessary, take full advantage of
government support measures for recapitalisation.
To sum up, the current key ECB interest rates remain appropriate. Taking into account all the
new information which has become available since our meeting on 6 May 2010, we continue
to expect price developments to remain moderate over the policy-relevant medium-term
horizon. Global inflationary pressures may persist, while domestic price pressures are
expected to remain low. The latest information has also confirmed that the economic
recovery in the euro area continued in the first half of 2010, but quarterly growth rates are
likely to be rather uneven. Looking ahead, we expect the euro area economy to grow at a
moderate pace, in an environment of continued tensions in some financial market segments
and of unusually high uncertainty. A cross-check of the outcome of our economic analysis
with that of the monetary analysis confirms that inflationary pressures over the medium term
remain contained, as suggested by weak money and credit growth. 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 remains of the essence. Accordingly, the Governing Council will
continue to monitor all developments over the period ahead very closely.
As regards fiscal policies, the Governing Council welcomes the recent decision by euro
area countries to formally establish a European Financial Stability Facility. This needs to be
accompanied by decisive action at the level of governments. It is essential that all countries
stick to their commitments to correct high budget deficits and government debt and reduce
fiscal vulnerability. To this end, the concrete adjustment measures needed to achieve the
budgetary targets should be fully specified. All countries must ensure that confidence in the
sustainability of public finances is guaranteed. The Governing Council welcomes the fact that
a number of euro area governments with the highest deficits and strongly increasing debt
levels have adopted additional fiscal consolidation measures and set out more ambitious
fiscal targets. In this context, we took note of the spring 2010 orientations for fiscal policies in
euro area countries agreed by the euro area finance ministers on 7 June, and welcome the
commitment to take additional measures, where needed, in order to ensure the achievement
of the budgetary targets for 2010 and beyond. It is indeed key that the new budgetary targets
be achieved. The Governing Council fully agrees with the ministers on the priority of halting
and reversing the increase in the debt ratio and welcomes the commitment to take immediate
action to that effect.
For all euro area countries, structural reforms leading to higher growth and employment are
crucial to support a sustainable recovery. Existing competitiveness problems, as well as
domestic and external imbalances, need to be urgently addressed by the countries
concerned. To that end, wage-bargaining should allow wages to adjust appropriately to the
competitiveness and unemployment situation. Likewise, measures that increase price
flexibility and non-price competitiveness are essential. Finally, an appropriate restructuring of
the banking sector should play an important role. Sound balance sheets, effective risk
management and transparent, robust business models are key to strengthening banks'
resilience to shocks and to ensuring adequate access to finance, thereby laying the
foundations for sustainable growth, job creation and financial stability.
We are now at your disposal for questions.