Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 7 November 2013.
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Ladies and gentlemen, I am very pleased to welcome you to our press conference. I will now
report on the outcome of today's meeting of the Governing Council, during which we took a
number of decisions on key ECB interest rates, forward guidance and liquidity provision.
First, based on our regular economic and monetary analyses, we decided to lower the
interest rate on the main refinancing operations of the Eurosystem by 25 basis points to
0.25% and the rate on the marginal lending facility by 25 basis points to 0.75%. The rate on
the deposit facility will remain unchanged at 0.00%. These decisions are in line with our
forward guidance of July 2013, given the latest indications of further diminishing underlying
price pressures in the euro area over the medium term, starting from currently low annual
inflation rates of below 1%. In keeping with this picture, monetary and, in particular, credit
dynamics remain subdued. 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%. Such a constellation suggests that we may experience
a prolonged period of low inflation, to be followed by a gradual upward movement towards
inflation rates below, but close to, 2% later on. Accordingly, our monetary policy stance will
remain accommodative for as long as necessary. It will thereby also continue to assist the
gradual economic recovery as reflected in confidence indicators up to October.
Second, following today's rate cut, the Governing Council reviewed the forward guidance
provided in July and confirmed that it continues to expect the key ECB interest rates to
remain at present or lower levels for an extended period of time. This expectation continues
to be based on an overall subdued outlook for inflation extending into the medium term,
given the broad-based weakness of the economy and subdued monetary dynamics.
Third, we continue to monitor closely money market conditions and their potential impact on
our monetary policy stance. We are ready to consider all available instruments and, in this
context, we decided today to continue conducting the main refinancing operations (MROs) as
fixed rate tender procedures with full allotment for as long as necessary, and at least until the
end of the 6th maintenance period of 2015 on 7 July 2015. This procedure will also remain in
use for the Eurosystem's special-term refinancing operations with a maturity of one
maintenance period, which will continue to be conducted for as long as needed, and at least
until the end of the second quarter of 2015. The fixed rate in these special-term refinancing
operations will be the same as the MRO rate prevailing at the time. Furthermore, we decided
to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until
the end of the second quarter of 2015 as fixed rate tender procedures with full allotment. The
rates in these three-month operations will be fixed at the average rate of the MROs over the
life of the respective LTRO.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Real GDP in the euro area rose by 0.3%, quarter on quarter, in the second quarter of 2013,
following six quarters of falling output. Developments in survey-based confidence indicators
up to October are consistent with continued, albeit modest, growth in the second half of the
year. Looking ahead, output is expected to continue to recover at a slow pace, in particular
owing to a gradual improvement in domestic demand supported by the accommodative
monetary policy stance. Euro area economic activity should, in addition, benefit from a
gradual strengthening of demand for exports. Furthermore, the overall improvements in
financial markets seen since last year appear to be gradually working their way through to
the real economy, as should the progress made in fiscal consolidation. In addition, real
incomes have benefited recently from generally lower energy price inflation. This being said,
unemployment in the euro area remains high, and the necessary balance sheet adjustments
in the public and private sectors will continue to weigh on economic activity.
The risks surrounding the economic outlook for the euro area continue to be on the
downside. Developments in global money and financial market conditions and related
uncertainties may have the potential to negatively affect economic conditions. Other
downside risks include higher commodity prices, weaker than expected domestic demand
and export growth, and slow or insufficient implementation of structural reforms in euro area
countries.
According to Eurostat's flash estimate, euro area annual HICP inflation decreased in October
2013 to 0.7%, from 1.1% in September. This decline was stronger than expected and
reflected, in particular, lower food price inflation, a larger fall in energy prices and some
weakening in services price inflation. On the basis of current futures prices for energy,
annual inflation rates are expected to remain at low levels in the coming months. Underlying
price pressures in the euro area are expected to remain subdued over the medium term. 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%. Such a constellation suggests that we may experience a prolonged period of low
inflation, to be followed by a gradual upward movement towards inflation rates below but
close to 2% later on.
Taking into account today's decisions, the risks to the outlook for price developments are
broadly balanced over the medium term. Upside risks relate in particular to higher commodity
prices as well as stronger than expected increases in administered prices and indirect taxes,
and downside risks stem from weaker than expected economic activity.
Turning to the monetary analysis, data for September confirm the subdued underlying
growth of broad money (M3) and, in particular, credit. Annual growth in M3 moderated to
2.1% in September, from 2.3% in August. Annual growth in M1 remained strong at 6.6%,
reflecting a preference for liquidity, although it was below the peak of 8.7% observed in April.
Net capital inflows into the euro area continued to be the main factor supporting annual
M3 growth, while the annual rate of change of loans to the private sector remained weak.
The annual growth rate of loans to households (adjusted for loan sales and securitisation)
stood at 0.3% in September, broadly unchanged since the turn of the year. The annual rate
of change of loans to non-financial corporations (adjusted for loan sales and securitisation)
was -2.7% in September, compared with -2.9% in August. Overall, weak loan dynamics for
non-financial corporations continue to reflect primarily their lagged relationship with the
business cycle, credit risk and the ongoing adjustment of financial and non-financial sector
balance sheets. At the same time, the October 2013 bank lending survey tentatively signals
a stabilisation in credit conditions for firms and households, in the context of still weak loan
demand.
Since the summer of 2012 substantial progress has been made in improving the funding
situation of banks. In order to ensure an adequate transmission of monetary policy to the
financing conditions in euro area countries, it is essential that the fragmentation of euro area
credit markets declines further and that the resilience of banks is strengthened where
needed. The ECB's comprehensive assessment before it adopts its supervisory role under
the single supervisory mechanism will further support this confidence-building process. It will
enhance the quality of information available on the condition of banks and result in the
identification and implementation of necessary corrective actions. Further decisive steps to
establish a banking union will help to restore confidence in the financial system.
To sum up, taking into account today's decisions, the economic analysis indicates that we
may experience a prolonged period of low inflation, to be followed by a gradual upward
movement towards inflation rates below, but close to, 2% later on. A cross-check with the
signals from the monetary analysis confirms this picture.
As regards the euro area budget deficit is projected to decline further from
fiscal policies,
3.1% of GDP in 2013 to 2.5% in 2014, according to the European Commission's autumn
2013 economic forecast. At the same time, the euro area government debt ratio is expected
to rise from 95.5% of GDP in 2013 to 95.9% in 2014. In order to put high public debt ratios on
a downward path, governments should not unravel their efforts to reduce deficits and sustain
fiscal adjustment over the medium term. The composition of fiscal consolidation should be
geared towards growth-friendly measures which have a medium-term perspective and
combine improving the quality and efficiency of public services with minimising distortionary
effects of taxation. Governments must also decisively strengthen efforts to implement the
needed structural reforms in product and labour markets. Progress has been made in
reducing current account deficits and unit labour cost differentials, but substantial efforts still
need to be undertaken with a view to further improving competitiveness, supporting
rebalancing within the euro area and creating more flexible and dynamic economies that in
turn generate sustainable economic growth and employment.
We are now at your disposal for questions.