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, 23 January
2020.
* * *
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.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
unchanged. We expect them to remain at their present or lower levels until we
interest rates
have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2%
within our projection horizon, and such convergence has been consistently reflected in
underlying inflation dynamics.
We will continue to make net purchases under our asset purchase programme (APP) at a
monthly pace of €20 billion. We expect them 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.
Today the Governing Council also decided to launch a review of the ECB's monetary policy
strategy. Further details about the scope and timetable of the review will be published in a press
release today at 15:30 CET.
The incoming data since our last meeting are in line with our baseline scenario of ongoing, but
moderate, growth of the euro area economy. In particular, the weakness in the manufacturing
sector remains a drag on euro area growth momentum. However, ongoing, albeit decelerating,
employment growth and increasing wages continue to support the resilience of the euro area
economy. While inflation developments remain subdued overall, there are some signs of a
moderate increase in underlying inflation in line with expectations.
The unfolding monetary policy measures are underpinning favourable financing conditions for all
sectors of the economy. In particular, easier borrowing conditions for firms and households are
supporting consumer spending and business investment. This will sustain the euro area
expansion, the build-up of domestic price pressures and, thus, the robust convergence of
inflation to our medium-term aim.
At the same time, in the light of the continued subdued inflation outlook, monetary policy has to
remain highly accommodative for a prolonged period of time to support underlying inflation
pressures and headline inflation developments over the medium term. We will, therefore, closely
monitor inflation developments and the impact of the unfolding monetary policy measures on the
economy. Our forward guidance will ensure that financial conditions adjust in accordance with
changes to the inflation outlook. In any case, the Governing Council continues to stand ready to
adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a
sustained manner, in line with its commitment to symmetry.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro
area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2019, following
growth of 0.2% in the second quarter. This pattern of moderate growth reflects the ongoing
weakness of international trade in an environment of continued global uncertainties, which has
particularly affected the euro area manufacturing sector and has also dampened investment
growth. At the same time, the services and construction sectors remain more resilient, despite
some moderation in the latter half of 2019. Incoming economic data and survey information point
to some stabilisation in euro area growth dynamics, with near-term growth expected to be similar
to rates observed in previous quarters. Looking ahead, the euro area expansion will continue to
be supported by favourable financing conditions, further employment gains in conjunction with
rising wages, the mildly expansionary euro area fiscal stance and the ongoing - albeit somewhat
slower - growth in global activity.
The risks surrounding the euro area growth outlook, related to geopolitical factors, rising
protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have
become less pronounced as some of the uncertainty surrounding international trade is receding.
Euro area annual HICP inflation increased to 1.3% in December 2019, from 1.0% in November,
reflecting mainly higher energy price inflation. On the basis of current futures prices for oil,
headline inflation is likely to hover around current levels in the coming months. While indicators of
inflation expectations remain at low levels, recently they have either stabilised or ticked up
slightly. Measures of underlying inflation have remained generally muted, although there are
further indications of a moderate increase in line with previous expectations. While labour cost
pressures have strengthened amid tighter labour markets, the weaker growth momentum is
delaying their pass-through to inflation. Over the medium term, inflation is expected to increase,
supported by our monetary policy measures, the ongoing economic expansion and solid wage
growth.
Turning to the monetary analysis, broad money (M3) growth stood at 5.6% in November 2019,
broadly unchanged since August. Sustained rates of broad money growth reflect ongoing bank
credit creation for the private sector and low opportunity costs of holding M3 relative to other
financial instruments. The narrow monetary aggregate M1 continues to be the main contributor to
broad money growth on the components side.
The growth of loans to firms and households remained solid, benefiting from the ongoing support
provided by our accommodative monetary policy stance, which is reflected in very low bank
lending rates. While the annual growth rate of loans to households remained unchanged from
October, at 3.5% in November, the annual growth rate of loans to non-financial corporations
moderated to 3.4% in November, from 3.8% in October, likely reflecting some lagged reaction to
the past weakening in the economy. These developments are also visible in the results of the
euro area bank lending survey for the fourth quarter of 2019, which indicate weakening demand
for loans to firms, while demand for loans to households for house purchase continued to
increase. However, credit standards for both loans to firms and loans to households for house
purchase remained broadly unchanged, pointing to still favourable credit supply conditions.
Overall, our accommodative monetary policy stance will help to safeguard very favourable bank
lending conditions and will continue to support access to financing across all economic sectors
and in particular for small and medium-sized enterprises.
To sum up, a of the outcome of the economic analysis with the signals coming
cross-check
from the monetary analysis confirmed that an ample degree of monetary accommodation is still
necessary for the continued robust convergence of inflation to levels that are below, but close to,
2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must
contribute more decisively to raising the longer-term growth potential, supporting aggregate
demand at the current juncture and reducing vulnerabilities. The implementation of structural
policies in euro area countries needs to be substantially stepped up to boost euro area
productivity and growth potential, reduce structural unemployment and increase resilience. The
2019 country-specific recommendations should serve as the relevant signpost.
Regarding the euro area fiscal stance is expected to continue to provide some
fiscal policies,
support to economic activity. In view of the weak economic outlook, the Governing Council
welcomes the Eurogroup's call in December for differentiated fiscal responses and its readiness
to coordinate. Governments with fiscal space should be ready to act in an effective and timely
manner. In countries where public debt is high, governments need to pursue prudent policies and
meet structural balance targets, which will create the conditions for automatic stabilisers to
operate freely. All countries should intensify their efforts to achieve a more growth-friendly
composition of public finances.
Likewise, the transparent and consistent implementation of the European Union's fiscal and
economic governance framework over time and across countries remains essential to bolster
the resilience of the euro area economy. Improving the functioning of Economic and Monetary
Union remains a priority. The Governing Council welcomes the ongoing work and urges further
specific and decisive steps to complete the banking union and the capital markets union.
We are now ready to take your questions.