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, 29 October
2020.
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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 Executive Vice-President, Mr Dombrovskis.
The resurgence in coronavirus (COVID-19) infections presents renewed challenges to public
health and the growth prospects of the euro area and global economies. Incoming information
signals that the euro area economic recovery is losing momentum more rapidly than expected,
after a strong, yet partial and uneven, rebound in economic activity over the summer months.
The rise in COVID-19 cases and the associated intensification of containment measures is
weighing on activity, constituting a clear deterioration in the near-term outlook. In fact, while
activity in the manufacturing sector has continued to recover, activity in the services sector has
been slowing visibly. Although fiscal policy measures are supporting households and firms,
consumers are cautious in the light of the pandemic and its ramifications for employment and
earnings. Moreover, weaker balance sheets and increased uncertainty about the economic
outlook are weighing on business investment. Headline inflation is being dampened by low
energy prices and muted underlying price pressures in the context of weak demand and
significant slack in labour and product markets.
The monetary policy measures that we have taken since early March are helping to preserve
favourable financing conditions for all sectors and jurisdictions across the euro area, thereby
providing crucial support to underpin economic activity and to safeguard medium-term price
stability. At the same time, in the current environment of risks clearly tilted to the downside, the
Governing Council will carefully assess the incoming information, including the dynamics of the
pandemic, prospects for a rollout of vaccines and developments in the exchange rate. The new
round of Eurosystem staff macroeconomic projections in December will allow a thorough
reassessment of the economic outlook and the balance of risks. On the basis of this updated
assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to
the unfolding situation and to ensure that financing conditions remain favourable to support the
economic recovery and counteract the negative impact of the pandemic on the projected inflation
path. This will foster the convergence of inflation towards its aim in a sustained manner, in line
with its commitment to symmetry.
In the meantime, we decided to reconfirm our 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 percent within our projection horizon, and such convergence has been
consistently reflected in underlying inflation dynamics.
We will continue our purchases under the pandemic emergency purchase programme (PEPP)
with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary
policy stance, thereby helping to offset the downward impact of the pandemic on the projected
path of inflation. The purchases will continue to be conducted in a flexible manner over time,
across asset classes and among jurisdictions. This allows us to effectively stave off risks to the
smooth transmission of monetary policy. We will conduct net asset purchases under the PEPP
until at least the end of June 2021 and, in any case, until the Governing Council judges that the
coronavirus crisis phase is over. We will reinvest the principal payments from maturing
securities purchased under the PEPP until at least the end of 2022. 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, together with the purchases under the additional €120 billion temporary envelope until
the end of the year. 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 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.
We will also continue to provide ample liquidity through our refinancing operations. In particular,
our third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive
source of funding for banks, supporting bank lending to firms and households.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro
area real GDP contracted by 11.8 percent, quarter on quarter, in the second quarter of 2020.
Following the trough in April 2020, the euro area economy rebounded strongly in the third quarter,
making up about half of the contraction in the first half of the year. The significant surge in
coronavirus infection rates and the associated intensification of containment measures since the
summer constitute clear headwinds to the short-term outlook. In fact, recent hard data, survey
results and high-frequency indicators point to a significant softening in economic activity in the
final quarter of the year. Moreover, economic developments continue to be uneven across
sectors. In particular, activity in the services sector is slowing again as it is the sector most
affected by the new restrictions on social activities and mobility. Looking ahead, while the
uncertainty related to the evolution of the pandemic will likely dampen the strength of the recovery
in the labour market and in consumption and investment, the euro area economy should continue
to be supported by favourable financing conditions and an expansionary fiscal stance.
Overall, the risks surrounding the euro area growth outlook are clearly tilted to the downside. This
largely reflects the recent resurgence in COVID-19 infections, the associated intensification of
containment measures and a highly uncertain timeline of the pandemic and its implications for
economic and financial conditions.
Euro area annual inflation decreased to -0.3 percent in September, from -0.2 percent in August,
reflecting developments in the prices of energy, non-energy industrial goods and services. On
the basis of oil price dynamics and taking into account the temporary reduction in German VAT,
headline inflation is likely to remain negative until early 2021. Moreover, near-term price
pressures will remain subdued owing to weak demand, notably in the tourism and travel-related
sectors, as well as to lower wage pressures and the appreciation of the euro exchange rate.
Once the impact of the pandemic fades, a recovery in demand, supported by accommodative
fiscal and monetary policies, will put upward pressure on inflation over the medium term.
Marketbased indicators and survey-based measures of longer-term inflation expectations remain
broadly unchanged at low levels.
Turning to the broad money (M3) growth rose to 10.4 percent in September
monetary analysis,
2020, from 9.5 percent in August, thus remaining well above the levels recorded before the
COVID-19 pandemic. Strong money growth continues to reflect domestic credit expansion and
the ongoing asset purchases by the Eurosystem, as well as precautionary considerations which
foster a heightened preference for liquidity in the money-holding sector. In this environment, the
narrow monetary aggregate M1, encompassing the most liquid forms of money, continues to be
the main contributor to broad money growth.
Developments in loans to the private sector continued to be shaped by the impact of the
COVID19 pandemic on economic activity. Following strong increases in the early months of the
pandemic, the annual growth rate of loans to non-financial corporations stood at 7.1 percent in
September, unchanged from August. This, however, masks a moderation in recent monthly loan
flows. The annual growth rate of loans to households edged up to 3.1 percent in September,
from 3.0 percent in August. Growth in loans to the private sector continues to benefit from
historically low bank lending rates.
According to our bank lending survey for the third quarter of 2020, credit conditions on loans to
firms tightened. While banks indicated that their funding and balance sheet conditions remain
supportive, higher risk perceptions could weigh on their attitude towards loan creation. Surveyed
banks reported a fall in firms' loan demand in the third quarter, reflecting a decline in emergency
liquidity needs and weakening corporate investment. The survey indicates an increase in
households' net demand for loans in the third quarter, while also suggesting the intention to
tighten credit standards for households.
Overall, our policy measures, together with the measures adopted by national governments and
European institutions, remain essential to support access to financing, including for those most
affected by the ramifications of the pandemic.
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
necessary to support economic activity and the robust convergence of inflation to levels that are
below, but close to, 2 percent over the medium term.
Regarding fiscal policies, an ambitious and coordinated fiscal stance remains critical, in view of
the sharp contraction in the euro area economy and the reduction in private demand. While fiscal
measures taken in response to the pandemic emergency should, as much as possible, be
targeted and temporary in nature, weak demand from firms and households and the heightened
risk of a delayed recovery warrant continued support from national fiscal policies. The three
safety nets endorsed by the European Council for workers, businesses and sovereigns provide
important funding support in this context.
The Governing Council recognises the key role of the Next Generation EU package and stresses
the importance of it becoming operational without delay. Provided the funds are deployed for
productive public spending and accompanied by productivity-enhancing structural policies,
Next Generation EU will contribute to a faster, stronger and more uniform recovery and will
increase economic resilience and the growth potential of Member States' economies, thereby
supporting the effectiveness of monetary policy in the euro area. Such structural policies are
particularly important in addressing long-standing structural and institutional weaknesses and in
accelerating the green and digital transition.
We are now ready to take your questions.