Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank, and
Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main,
4 April 2012.
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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
unchanged. The information that has become available since the beginning of
interest rates
March broadly confirms our previous assessment. Inflation rates are likely to stay above 2%
in 2012, with upside risks prevailing. Over the policy-relevant horizon, we expect price
developments to remain in line with price stability. Consistent with this picture, the underlying
pace of monetary expansion remains subdued. Survey indicators for economic growth have
broadly stabilised at low levels in the early months of 2012, and a moderate recovery in
activity is expected in the course of the year. The economic outlook remains subject to
downside risks.
Medium-term inflation expectations for the euro area economy must continue to be firmly
anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the
medium term. Over the last few months we have implemented both standard and
nonstandard monetary policy measures. This combination of measures has contributed to a
stabilisation in the financial environment and an improvement in the transmission of our
monetary policy. We need to carefully monitor further developments. It is also important to
keep in mind that all our non-standard monetary policy measures are temporary in nature
and that all the necessary tools are available to address upside risks to medium-term price
stability in a firm and timely manner.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Real GDP contracted by 0.3% in the euro area in the fourth quarter of 2011. Survey data
confirm a stabilisation in economic activity at a low level in early 2012. We continue to expect
the euro area economy to recover gradually in the course of the year. The outlook for
economic activity should be supported by foreign demand, the very low short-term interest
rates in the euro area, and all the measures taken to foster the proper functioning of the euro
area economy. However, the remaining tensions in euro area sovereign debt markets and
their impact on credit conditions, as well as the process of balance sheet adjustment in the
financial and non-financial sectors and high unemployment in parts of the euro area, are
expected to continue to dampen the underlying growth momentum.
Downside risks to the economic outlook prevail. They relate in particular to a renewed
intensification of tensions in euro area debt markets and their potential spillover to the euro
area real economy. Downside risks also relate to further increases in commodity prices.
Euro area annual HICP inflation was 2.6% in March 2012, according to Eurostat's flash
estimate, after 2.7% in the previous three months. Inflation is likely to stay above 2% in 2012,
mainly owing to recent increases in energy prices, as well as recently announced rises in
indirect taxes. On the basis of current futures prices for commodities, annual inflation rates
should fall below 2% again in early 2013. In this context, we will pay particular attention to
any signs of pass-through from higher energy prices to wages, profits and general
pricesetting. However, looking ahead, in an environment of modest growth in the euro area and
well-anchored long-term inflation expectations, underlying price pressures should remain
limited.
Risks to the outlook for HICP inflation rates in the coming years are still seen to be broadly
balanced, with upside risks in the near term mainly stemming from higher than expected oil
prices and indirect tax increases. Downside risks continue to exist owing to weaker than
expected developments in economic activity.
The monetary analysis indicates that the underlying pace of monetary expansion has
remained subdued. The annual growth rate of M3 was 2.8% in February 2012, compared
with 2.5% in January. In both January and February we observed a strengthening in the
deposit base of banks. Annual loan growth to the private sector has remained subdued, with
the rate (adjusted for loan sales and securitisation) moderating in February to 1.1% year on
year, from 1.5% in January.
The annual growth rates of loans to non-financial corporations and loans to households
(adjusted for loan sales and securitisation) stood at 0.6% and 1.8% respectively in February.
The volume of MFI loans to non-financial corporations and households remained practically
unchanged compared with the previous month.
Money and credit data up to February confirm a broad stabilisation of financial conditions and
thereby the avoidance of an abrupt and disorderly adjustment in the balance sheets of credit
institutions, as intended by our measures. Funding conditions for banks have generally
improved, and there has been increased issuance activity and a re-opening of some
segments of funding markets. The demand for credit remains weak in the light of still
subdued economic activity and the ongoing process of balance sheet adjustment in
nonfinancial sectors. The full supportive impact of the Eurosystem's non-standard measures will
need time to unfold and to have a positive effect on the growth of loans when demand
recovers. In this context, it should be noted that the second three-year longer-term
refinancing operation was only settled on 1 March 2012.
Following the stabilisation in the financial environment, it is essential for banks to strengthen
their resilience further, including by retaining earnings. The soundness of banks' balance
sheets will be a key factor in facilitating both an appropriate provision of credit to the
economy and the normalisation of all funding channels.
To sum up, the economic analysis indicates that price developments should remain in line
with price stability over the medium term. A cross-check with the signals from the monetary
analysis confirms this picture.
In order to support confidence, sustainable growth and employment, the Governing Council
calls upon governments to restore sound fiscal positions and implement strong structural
reforms. Commitments under the Stability and Growth Pact need to be fully honoured and
weaknesses in competitiveness forcefully addressed. National policy-makers need to fully
meet their responsibilities to ensure fiscal sustainability, to increase the adjustment capacity
of product and labour markets, to enhance productivity and competitiveness, and to ensure
the soundness of their financial system. In particular, countries which have suffered losses in
cost competitiveness need to ensure sufficient wage adjustment and foster productivity
growth.
Let me conclude by recalling that the single monetary policy naturally focuses on maintaining
medium-term price stability for the euro area as a whole. It is up to national policy-makers to
foster domestic developments which support the competitiveness of their economies. Both
prudent fiscal policies and competitive and flexible product and labour markets are of crucial
importance for the functioning of the euro area economy.
We are now at your disposal for questions.