Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 3 July 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.
Based on our regular economic and monetary analyses, we decided to keep the key ECB
interest rates unchanged. The latest information signals that the euro area economy
continued its moderate recovery in the second quarter, with low rates of inflation and
subdued monetary and credit growth. At the same time, inflation expectations for the euro
area over the medium to long term continue to be firmly anchored in line with our aim of
maintaining inflation rates below, but close to, 2%. The combination of monetary policy
measures decided last month has already led to a further easing of the monetary policy
stance. The monetary operations to take place over the coming months will add to this
accommodation and will support bank lending. As our measures work their way through to
the economy, they will contribute to a return of inflation rates to levels closer to 2%.
Concerning our forward guidance, the key ECB interest rates will remain at present levels for
an extended period of time in view of the current outlook for inflation. Moreover, the
Governing Council is unanimous in its commitment to also using unconventional instruments
within its mandate, should it become necessary to further address risks of too prolonged a
period of low inflation. We are strongly determined to safeguard the firm anchoring of inflation
expectations over the medium to long term.
As a follow-up to the decisions taken in early June, the Governing Council today also
decided on specific modalities for the targeted longer-term refinancing operations
(TLTROs). The aim of the TLTROs is to enhance the functioning of the monetary policy
transmission mechanism by supporting lending to the real economy. A press release on the
modalities for the TLTROs will be published today at 3.30 p.m. As announced last month, we
have also started to intensify preparatory work related to outright purchases in the ABS
market to enhance the functioning of the monetary policy transmission mechanism.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Real GDP in the euro area rose by 0.2%, quarter on quarter, in the first quarter of this year.
Economic indicators, including survey results available up to June, signal a continuation of
the very gradual recovery in the second quarter of 2014. Looking ahead, domestic demand
should be supported by a number of factors, including the further accommodation in the
monetary policy stance and the ongoing improvements in financing conditions. In addition,
the progress made in fiscal consolidation and structural reforms, as well as gains in real
disposable income, should make a positive contribution to economic growth. Furthermore,
demand for exports should benefit from the ongoing global recovery. However, although
labour markets have shown some further signs of improvement, unemployment remains high
in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the
annual rate of change of MFI loans to the private sector remained negative in May and the
necessary balance sheet adjustments in the public and private sectors are likely to continue
to dampen the pace of the economic recovery.
The risks surrounding the economic outlook for the euro area remain on the downside. In
particular, geopolitical risks, as well as developments in emerging market economies and
global financial markets, may have the potential to affect economic conditions negatively,
including through effects on energy prices and global demand for euro area products. A
further downside risk relates to insufficient structural reforms in euro area countries, as well
as weaker than expected domestic demand.
According to Eurostat's flash estimate, euro area annual HICP inflation was 0.5% in June
2014, unchanged from May. Among the main components, services price inflation increased
from 1.1% in May to 1.3% in June, while food price inflation fell from 0.1% to -0.2%. 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. Meanwhile, inflation
expectations for the euro area over the medium to long term continue to be firmly anchored
in line with our aim of maintaining inflation rates below, but close to, 2%.
The Governing Council sees both upside and downside risks to the outlook for price
developments as limited and broadly balanced over the medium term. In this context, we will
closely monitor the possible repercussions of geopolitical risks and exchange rate
developments.
Turning to the monetary analysis, data for May 2014 continue to point to subdued
underlying growth in broad money (M3). Annual growth in M3 was 1.0% in May, compared
with 0.7% in April. The growth of the narrow monetary aggregate M1 moderated to 5.0 % in
May, after 5.2% in April. The increase in the MFI net external asset position, reflecting in part
the continued interest of international investors in euro area assets, has recently been an
important factor supporting annual M3 growth.
The annual rate of change of loans to non-financial corporations (adjusted for loan sales and
securitisation) was -2.5% in May 2014, compared with -2.8% in April. Lending to
non-financial corporations continues to be weak, reflecting 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 May 2014, broadly unchanged since the
beginning of 2013.
Against the background of weak credit growth, the ongoing comprehensive assessment of
banks' balance sheets is of key importance. Banks should take full advantage of this
exercise to improve their capital and solvency position, thereby supporting the scope for
credit expansion during the next stages of the recovery.
To sum up, the economic analysis indicates that the current low level of inflation should be
followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%.
A cross-check with the signals from the monetary analysis confirms this picture.
As regards fiscal policies, substantial fiscal consolidation in recent years has contributed to
reducing budgetary imbalances. Important structural reforms have increased
competitiveness and the adjustment capacity of countries' labour and product markets.
However, significant challenges remain. To strengthen the foundations for sustainable
growth and sound public finances, euro area countries should not unravel the progress made
with fiscal consolidation, in line with the Stability and Growth Pact, and should proceed with
structural reforms in the coming years. Fiscal consolidation should be designed in a
growth-friendly manner, and structural reforms should focus on fostering private investment
and job creation. 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.
Finally, I wish to inform you that the Governing Council today announces that the frequency
of our monetary policy meetings will change to a six-week cycle, from January 2015. The
reserve maintenance periods will be extended to six weeks to match the new schedule.
Moreover, we announce our commitment to publish regular accounts of the monetary policy
meetings, which is intended to start with the January 2015 meeting. A press release
providing more details will be published today at 3.30 p.m.
We are now at your disposal for questions.