Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Luis
de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 25 July 2019.
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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 today's meeting of the Governing Council,
which was also attended by the Commission Vice-President, Mr Dombrovskis.
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 at least
interest rates
through the first half of 2020, and in any case for as long as necessary to ensure the continued
sustained convergence of inflation to our aim over the medium term.
We intend to continue reinvesting, in full, the principal payments from maturing securities
purchased under the asset purchase programme 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.
The Governing Council also underlined the need for a highly accommodative stance of monetary
policy for a prolonged period of time, as inflation rates, both realised and projected, have been
persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation
outlook continues to fall short of our aim, the Governing Council is determined to act, in line with
its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its
instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained
manner.
In this context, we have tasked the relevant Eurosystem Committees with examining options,
including ways to reinforce our forward guidance on policy rates, mitigating measures, such as
the design of a tiered system for reserve remuneration, and options for the size and composition
of potential new net asset purchases.
Incoming information since the last Governing Council meeting in early June indicates that, while
further employment gains and increasing wages continue to underpin the resilience of the
economy, softening global growth dynamics and weak international trade are still weighing on the
euro area outlook. Moreover, the prolonged presence of uncertainties, related to geopolitical
factors, the rising threat of protectionism, and vulnerabilities in emerging markets, is dampening
economic sentiment, notably in the manufacturing sector. In this environment, inflationary
pressures remain muted and indicators of inflation expectations have declined. Therefore, a
significant degree of monetary stimulus continues to be necessary to ensure that financial
conditions remain very favourable and support the euro area expansion, the ongoing build-up of
domestic price pressures and, thus, headline inflation developments over the medium term.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Following a rise of 0.2% in the fourth quarter of 2018, euro area real GDP increased by 0.4%,
quarter on quarter, in the first quarter of 2019. Incoming economic data and survey information
continue to point to somewhat slower growth in the second and third quarters of this year. This
mainly reflects the ongoing weakness in international trade in an environment of prolonged global
uncertainties, which are particularly affecting the euro area manufacturing sector. At the same
time, activity levels in the services and construction sectors are resilient and the labour market is
still improving. Looking ahead, the euro area expansion will continue to be supported by
favourable financing conditions, further employment gains and 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 remain tilted to the downside, reflecting the
prolonged presence of uncertainties, related to geopolitical factors, the rising threat of
protectionism, and vulnerabilities in emerging markets.
Euro area annual HICP inflation increased to 1.3% in June 2019, from 1.2 % in May, as higher
HICP inflation excluding food and energy more than offset lower energy price inflation. On the
basis of current futures prices for oil, headline inflation is likely to decline over the coming
months, before rising again towards the end of the year. Looking through the recent volatility due
to temporary factors, measures of underlying inflation remain generally muted. Indicators of
inflation expectations have declined. While labour cost pressures have strengthened and
broadened amid high levels of capacity utilisation and tightening labour markets, the
passthrough of cost pressures to inflation is taking longer than previously anticipated. Over the
medium term underlying inflation is expected to increase, supported by our monetary policy
measures, the ongoing economic expansion and stronger wage growth.
Turning to the monetary analysis, broad money (M3) growth stood at 4.5% in June 2019, after
4.8% in May. Sustained rates of broad money growth reflect ongoing bank credit creation for the
private sector and low opportunity costs of holding M3. The narrow monetary aggregate M1
continues to be the main contributor to broad money growth on the components side.
The annual growth rate of loans to non-financial corporations remained unchanged at 3.8% in
June 2019. Notwithstanding some moderation from the peak recorded in September 2018, the
annual growth rate of loans to non-financial corporations continues to be robust. The annual
growth rate of loans to households also remained unchanged at 3.3% in June, continuing its
gradual improvement. Overall, loan growth is still benefiting from historically low bank lending
rates. The euro area bank lending survey for the second quarter of 2019 indicates that loan
growth continued to be supported by increasing demand across all loan categories. At the same
time, credit standards for loans to enterprises tightened in the second quarter amid concerns
about the economic outlook, while they remained broadly unchanged for loans for house
purchase.
Our monetary policy measures, including the forthcoming new series of targeted longer-term
refinancing operations (TLTRO III), will help to safeguard favourable bank lending conditions and
will continue to support access to financing, in particular for small and medium-sized
enterprises.
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 still
necessary for the continued sustained 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 and reducing vulnerabilities.
The implementation of structural reforms 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 fiscal policies, the mildly expansionary euro area fiscal stance is
providing support to economic activity. At the same time, countries where government debt is
high need to continue rebuilding fiscal buffers. All countries should reinforce 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 at your disposal for questions.