Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank,
Frankfurt am Main, 6 November 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 Dombrovskis.
Based on our regular economic and monetary analyses, and in line with our forward
guidance, we decided to keep the key ECB interest rates unchanged. Following up on the
decisions of 2 October 2014, we last month started purchasing covered bonds under our new
programme. We will also soon start to purchase asset-backed securities. The programmes
will last for at least two years. Together with the series of targeted longer-term refinancing
operations to be conducted until June 2016, these asset purchases will have a sizeable
impact on our balance sheet, which is expected to move towards the dimensions it had at the
beginning of 2012.
Our measures will enhance the functioning of the monetary policy transmission mechanism,
support financing conditions in the euro area, facilitate credit provision to the real economy
and generate positive spillovers to other markets. They will thereby further ease the
monetary policy stance more broadly, support our forward guidance on the key ECB interest
rates and reinforce the fact that there are significant and increasing differences in the
monetary policy cycle between major advanced economies.
With the measures that have been put in place, monetary policy has responded to the
outlook for low inflation, a weakening growth momentum and continued subdued monetary
and credit dynamics. Our accommodative monetary policy stance will underpin the firm
anchoring of medium to long-term inflation expectations, in line with our aim of achieving
inflation rates below, but close to, 2%. As they work their way through to the economy, our
monetary policy measures will together contribute to a return of inflation rates to levels closer
to our aim.
However, looking ahead, and taking into account new information and analysis, the
Governing Council will closely monitor and continuously assess the appropriateness of its
monetary policy stance. 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. The Governing Council has
tasked ECB staff and the relevant Eurosystem committees with ensuring the timely
preparation of further measures to be implemented, if needed.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Euro area real GDP increased by 0.1%, quarter on quarter, in the second quarter of this
year, revised up as compared with the earlier estimate. Since the summer months, incoming
data and survey evidence have overall indicated a weakening in the euro area's growth
momentum. This information has now been incorporated into the most recent forecasts by
private and public institutions, which indicate a downward revision of real GDP growth over
the projection horizon up to 2016, with the outlook for a modest economic recovery
remaining in place. This picture is broadly in line with the Governing Council's current
assessment. On the one hand, domestic demand should be supported by 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. On the other hand, the recovery is likely to continue to be dampened by high
unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in
the public and private sectors.
The risks surrounding the economic outlook for the euro area continue to be on the
downside. In particular, the weakening in the euro area's growth momentum, alongside
heightened geopolitical risks, could dampen confidence and, in particular, private investment.
In addition, insufficient progress in structural reforms in euro area countries constitutes a key
downward risk to the economic outlook.
According to Eurostat's flash estimate, euro area annual HICP inflation was 0.4% in October
2014, after 0.3% in September. Compared with the previous month, this mainly reflects a
somewhat less negative contribution from energy prices and slightly stronger annual
increases in food prices. A fall in industrial goods prices was partly compensated for by an
increase in services price inflation. On the basis of current information and prevailing futures
prices for energy, annual HICP inflation is expected to remain at around current low levels
over the coming months, before increasing gradually during 2015 and 2016. This is also the
picture portrayed by the most recent forecasts, which now incorporate the recent sharp fall in
oil prices.
The Governing Council 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 and energy price developments, and the pass-through of our monetary policy measures.
Turning to the monetary analysis, data for September 2014 continue to point to subdued
underlying growth in broad money (M3), with the annual growth rate increasing moderately,
however, to 2.5% in September, after 2.1% in August. Annual growth in M3 continues to be
supported by its most liquid components, with the narrow monetary aggregate M1 growing at
an annual rate of 6.2% in September.
The annual rate of change of loans to non-financial corporations (adjusted for loan sales and
securitisation) remained negative at -1.8% in September, after -2.0% in August and -2.2%
in July. On average over recent months, net redemptions have moderated from the
historically high levels recorded a year ago. 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 0.6% in
September, after 0.5% in August. In line with some stabilisation in credit flows, the October
bank lending survey for the euro area reported a net easing of credit standards on loans to
enterprises and households. At the same time, it has to be kept in mind that the level of
credit standards is still tight from a historical perspective. Following the completion of the
ECB's comprehensive assessment, a further strengthening of banks' balance sheets can be
expected to contribute to reducing credit supply constraints and facilitating more lending.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming
from the monetary analysis confirms the recent decisions taken by the Governing Council to
provide further monetary policy accommodation and to support lending to the real economy.
Monetary policy is focused on maintaining price stability over the medium term and its
accommodative stance contributes to supporting economic activity. However, in order to
strengthen investment activity, boost job creation and raise productivity growth, other policy
areas need to contribute decisively. In particular, the legislation and implementation of
product and labour market reforms as well as actions to improve the business
environment for firms need to gain momentum in several countries. The effective
implementation of structural reforms will raise expectations of higher incomes and encourage
firms to increase investment today and bring forward the economic recovery. As regards
fiscal policies, countries with remaining fiscal imbalances should not unravel the progress
already made and should proceed in line with the rules of the Stability and Growth Pact.
Throughout the procedural steps under the agreed framework, the Pact should remain the
anchor for confidence in sustainable public finances. The existing flexibility within the rules
should allow governments to address the budgetary costs of major structural reforms, to
support demand and 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 resilience of the euro area economy to shocks.
We are now at your disposal for questions.