Mario Draghi: Introductory statement to the press conference
Remarks by Mr Mario Draghi, President of the European Central Bank, Frankfurt am Main,
7 August 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 available information remains consistent with our
assessment of a continued moderate and uneven recovery of the euro area economy, with
low rates of inflation and subdued monetary and credit dynamics. 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 monetary policy
measures decided in early June have led to an easing of the monetary policy stance. This is
in line with our forward guidance and adequately reflects the outlook for the euro area
economy, as well as the differences in terms of the monetary policy cycle between major
advanced economies. The targeted longer-term refinancing operations (TLTROs) that are to
take place over the coming months will enhance our accommodative monetary policy stance.
These operations will provide long-term funding at attractive terms and conditions over a
period of up to four years for all banks that meet certain benchmarks applicable to their
lending to the real economy. This should help to ease funding conditions further and
stimulate credit provision to the real economy. As our measures work their way through to
the economy they will contribute to a return of inflation rates to levels closer to 2%.
As stated previously, and as a follow-up to our decision in early June, we have intensified
preparatory work related to outright purchases in the asset-backed securities market to
enhance the functioning of the monetary policy transmission mechanism.
Looking ahead, we will maintain a high degree of monetary accommodation. 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.
Let me now explain our assessment in greater detail, starting with the economic analysis.
In the first quarter of this year euro area real GDP rose by 0.2%, quarter on quarter. With
regard to the second quarter, monthly indicators have been somewhat volatile, partly
reflecting technical factors. Overall, recent information, including survey data available for
July, remains consistent with our expectation of a continued moderate and uneven recovery
of the euro area economy. Looking ahead, domestic demand should be supported by a
number of factors, including the accommodative monetary policy stance and the ongoing
improvements in financial 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 June 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, heightened 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 0.4% in July
2014, after 0.5% in June. This reflects primarily lower energy price inflation, while the other
main components of the HICP remained broadly unchanged. 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 heightened geopolitical risks and exchange
rate developments.
Turning to the monetary analysis, data for June 2014 continue to point to subdued
underlying growth in broad money (M3), with annual growth standing at 1.5% in June,
compared with 1.0% in May. The growth of the narrow monetary aggregate M1 stood at
5.3% in June, up from 5.0% in May. 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 -2.3% in June, compared with -2.5% in May and -3.2%
in February. 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. At the same time, in terms of
monthly flows, loans to non-financial corporations have shown some signs of a stabilisation
over recent months, after recording sizeable negative monthly flows earlier in the year. This
is consistent with the results of the bank lending survey for the second quarter of 2014 in
which banks reported that credit standards for loans to enterprises had eased in net terms.
However, they remain rather tight overall, when seen from a historical perspective. In
addition, banks reported an improvement in net loan demand by non-financial corporations
and households. The annual growth rate of loans to households (adjusted for loan sales and
securitisation) was 0.5% in June, broadly unchanged since the beginning of 2013.
Against the background of weak credit growth, the ECB's ongoing comprehensive
assessment of banks' balance sheets is of key importance. Banks should take full advantage
of this exercise to improve their capital 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, comprehensive 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.
These efforts now need to gain momentum to enhance the euro area's growth potential.
Structural reforms should focus on fostering private investment and job creation. To restore
sound public finances, euro area countries should proceed in line with the Stability and
Growth Pact and should not unravel the progress made with fiscal consolidation. Fiscal
consolidation should be designed in a growth-friendly way. 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.