Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 4 September 2014.
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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 Katainen.
Based on our regular economic and monetary analyses, the Governing Council decided
today to lower the interest rate on the main refinancing operations of the Eurosystem by
10 basis points to 0.05% and the rate on the marginal lending facility by 10 basis points to
0.30%. The rate on the deposit facility was lowered by 10 basis points to -0.20%. In addition,
the Governing Council decided to start purchasing non-financial private sector assets. The
Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities
(ABSs) with underlying assets consisting of claims against the euro area non-financial private
sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS
market in facilitating new credit flows to the economy and follows the intensification of
preparatory work on this matter, as decided by the Governing Council in June. In parallel, the
Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued
by MFIs domiciled in the euro area under a new covered bond purchase programme
(CBPP3). Interventions under these programmes will start in October 2014. The detailed
modalities of these programmes will be announced after the Governing Council meeting of
2 October 2014. The newly decided measures, together with the targeted longer-term
refinancing operations which will be conducted in two weeks, will have a sizeable impact on
our balance sheet.
These decisions will add to the range of monetary policy measures taken over recent
months. In particular, they will support our forward guidance on the key ECB interest rates
and reflect the fact that there are significant and increasing differences in the monetary policy
cycle between major advanced economies. They will further enhance the functioning of the
monetary policy transmission mechanism and support the provision of credit to the broad
economy. In our analysis, we took into account the overall subdued outlook for inflation, the
weakening in the euro area's growth momentum over the recent past and the continued
subdued monetary and credit dynamics. Today's decisions, together with the other measures
in place, have been taken with a view to underpinning the firm anchoring of medium to
longterm inflation expectations, in line with our aim of maintaining inflation rates below, but close
to, 2%. As our measures work their way through to the economy they will contribute to a
return of inflation rates to levels closer to 2%. Should it become necessary to further address
risks of too prolonged a period of low inflation, the Governing Council is unanimous in its
commitment to using additional unconventional instruments within its mandate.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Following four quarters of moderate expansion, euro area real GDP remained unchanged in
the second quarter of this year compared with the previous quarter. While it partly reflected
one-off factors, this outcome was weaker than expected. With regard to the third quarter,
survey data available up to August indicate a loss in cyclical growth momentum, while
remaining consistent with a modest expansion.
Domestic demand should be supported by the range of our monetary policy measures, the
ongoing improvements in financial conditions, the progress made in fiscal consolidation and
structural reforms, and lower energy prices supporting real disposable income. Furthermore,
demand for exports should benefit from the global recovery. At the same time, the recovery
is likely to continue to be dampened by high unemployment, sizeable unutilised capacity,
continued negative MFI loan growth to the private sector, and the necessary balance sheet
adjustments in the public and private sectors. Looking ahead, the key factors and
assumptions shaping the outlook for growth need to be monitored closely.
These elements are reflected in the September 2014 ECB staff macroeconomic projections
for the euro area, which foresee annual real GDP increasing by 0.9% in 2014, 1.6% in 2015
and 1.9% in 2016. Compared with the June 2014 Eurosystem staff macroeconomic
projections, the projections for real GDP growth for 2014 and 2015 have been revised
downwards and the projection for 2016 has been revised upwards.
The Governing Council sees the risks surrounding the economic outlook for the euro area on
the downside. In particular, the loss in economic momentum may dampen private
investment, and heightened geopolitical risks could have a further negative impact on
business and consumer confidence. Another downside risk relates to insufficient structural
reforms in euro area countries.
According to Eurostat's flash estimate, euro area annual HICP inflation was 0.3% in August
2014, after 0.4% in July. This decline reflects primarily lower energy price inflation, while the
other main components remained broadly unchanged in aggregate. Inflation rates have now
remained low for a considerable period of time. As said, today's decisions, together with the
other measures in place, have been taken to underpin the firm anchoring of medium to
longterm inflation expectations, in line with our aim of maintaining inflation rates below, but close
to, 2%. On the basis of current information, annual HICP inflation is expected to remain at
low levels over the coming months, before increasing gradually during 2015 and 2016.
The September 2014 ECB staff macroeconomic projections for the euro area foresee annual
HICP inflation at 0.6% in 2014, 1.1% in 2015 and 1.4% in 2016. In comparison with the June
2014 Eurosystem staff macroeconomic projections, the projection for inflation for 2014 has
been revised downwards. The projections for 2015 and 2016 have remained unchanged.
The Governing Council, taking into account the measures decided today, will continue to
closely monitor the risks to the outlook for price developments over the medium term. In this
context, we will focus in particular on the possible repercussions of dampened growth
dynamics, geopolitical developments, exchange rate developments and the pass-through of
our monetary policy measures.
Turning to the monetary analysis, data for July 2014 continue to point to subdued
underlying growth in broad money (M3), with annual growth standing at 1.8% in July,
compared with 1.6% in June. The growth of the narrow monetary aggregate M1 stood at
5.6% in July, up from 5.4% in June. The increase in the MFI net external asset position,
reflecting in part the continued interest of international investors in euro area assets,
remained an important factor supporting annual M3 growth.
The annual rate of change of loans to non-financial corporations (adjusted for loan sales and
securitisation) remained negative at -2.2% in July, unchanged compared with the previous
month. However, net redemptions were again sizeable in July. Lending to non-financial
corporations continues to reflect the lagged relationship with the business cycle, credit risk,
credit supply factors and the ongoing adjustment of financial and non-financial sector
balance sheets. The annual growth rate of loans to households (adjusted for loan sales and
securitisation) was 0.5% in July, broadly unchanged since the beginning of 2013.
Against the background of weak credit growth, the ECB is finalising the comprehensive
assessment of banks' balance sheets, which is of key importance to overcome credit supply
constraints.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming
from the monetary analysis led the Governing Council to decide on measures to provide
further monetary policy accommodation and to support lending to the real economy.
With regard to structural reforms, important steps have been taken in several Member
States, while in others such measures still need to be legislated for and implemented. These
efforts now clearly need to gain momentum to achieve higher sustainable growth and
employment in the euro area. Determined structural reforms in product and labour markets
as well as action to improve the business environment are warranted. As regards fiscal
policies, comprehensive fiscal consolidation in recent years has contributed to reducing
budgetary imbalances. Euro area countries should not unravel the progress made with fiscal
consolidation and should proceed in line with the Stability and Growth Pact. The Pact acts as
an anchor for confidence, and the existing flexibility within the rules allows the budgetary
costs of major structural reforms to be addressed and demand to be supported. There is also
leeway to achieve a more growth-friendly composition of fiscal policies. A full and consistent
implementation of the euro area's existing fiscal and macroeconomic surveillance framework
is key to bringing down high public debt ratios, to raising potential growth and to increasing
the euro area's resilience to shocks.
We are now at your disposal for questions.