Christine Lagarde: ECB press conference - introductory statement
Introductory statement by Ms Christine Lagarde, President of the European Central
Bank, and Mr Luis de Guindos, Vice-President of the European Central Bank, Frankfurt
am Main, 11 April 2024.
* * *
Good afternoon, the Vice-President and I welcome you to our press conference.
The Governing Council today decided to keep the three key ECB interest rates
unchanged. The incoming information has broadly confirmed our previous assessment
of the medium-term inflation outlook. Inflation has continued to fall, led by lower food
and goods price inflation. Most measures of underlying inflation are easing, wage
growth is gradually moderating, and firms are absorbing part of the rise in labour costs
in their profits. Financing conditions remain restrictive and our past interest rate
increases continue to weigh on demand, which is helping to push down inflation. But
domestic price pressures are strong and are keeping services price inflation high.
We are determined to ensure that inflation returns to our two per cent medium-term
target in a timely manner. We consider that the key ECB interest rates are at levels that
are making a substantial contribution to the ongoing disinflation process. Our future
decisions will ensure that our policy rates will stay sufficiently restrictive for as long as
necessary. If our updated assessment of the inflation outlook, the dynamics of
underlying inflation and the strength of monetary policy transmission were to further
increase our confidence that inflation is converging to our target in a sustained manner,
it would be appropriate to reduce the current level of monetary policy restriction. In any
event, we will continue to follow a data-dependent and meeting-by-meeting approach to
determining the appropriate level and duration of restriction, and we are not
precommitting to a particular rate path.
The decisions taken today are set out in a press release available on our website.
I will now outline in more detail how we see the economy and inflation developing and
will then explain our assessment of financial and monetary conditions.
Economic activity
The economy remained weak in the first quarter. While spending on services is
resilient, manufacturing firms are facing weak demand and production is still subdued,
especially in energy-intensive sectors. Surveys point to a gradual recovery over the
course of this year, led by services. This recovery is expected to be supported by rising
real incomes, resulting from lower inflation, increased wages and improved terms of
trade. In addition, the growth of euro area exports should pick up over the coming
quarters, as the global economy recovers and spending shifts further towards tradables.
Finally, monetary policy should exert less of a drag on demand over time.
The unemployment rate is at its lowest level since the start of the euro. At the same
time, the tightness in the labour market continues to gradually decline, with employers
posting fewer job vacancies.
Governments should continue to roll back energy-related support measures so that
disinflation can proceed sustainably. Implementing the EU's revised economic
governance framework fully and without delay will help governments bring down budget
deficits and debt ratios on a sustained basis. National fiscal and structural policies
should be aimed at making the economy more productive and competitive, which would
help to reduce price pressures in the medium term. At the European level, an effective
and speedy implementation of the Next Generation EU programme and a strengthening
of the Single Market would help foster innovation and increase investment in the green
and digital transitions. More determined and concrete efforts to complete the banking
union and the capital markets union would help mobilise the massive private investment
necessary to achieve this, as the Governing Council stressed in its statement of 7
March 2024.
Inflation
Inflation has continued to decline, from an annual rate of 2.6 per cent in February to 2.4
per cent in March, according to Eurostat's flash estimate. Food price inflation dropped
to 2.7 per cent in March, from 3.9 per cent in February, while energy price inflation
stood at -1.8 per cent in March, after -3.7 per cent in the previous month. Goods price
inflation fell again in March, to 1.1 per cent, from 1.6 per cent in February. However,
services price inflation remained high in March, at 4.0 per cent.
Most measures of underlying inflation fell further in February, confirming the picture of
gradually diminishing price pressures. While domestic inflation remains high, wages
and unit profits grew less strongly than anticipated in the last quarter of 2023, but unit
labour costs remained high, in part reflecting weak productivity growth. More recent
indicators point to further moderation in wage growth.
Inflation is expected to fluctuate around current levels in the coming months and to then
decline to our target next year, owing to weaker growth in labour costs, the unfolding
effects of our restrictive monetary policy, and the fading impact of the energy crisis and
the pandemic. Measures of longer-term inflation expectations remain broadly stable,
with most standing around 2 per cent.
Risk assessment
The risks to economic growth remain tilted to the downside. Growth could be lower if
the effects of monetary policy turn out stronger than expected. A weaker world
economy or a further slowdown in global trade would also weigh on euro area growth.
Russia's unjustified war against Ukraine and the tragic conflict in the Middle East are
major sources of geopolitical risk. This may result in firms and households becoming
less confident about the future and global trade being disrupted. Growth could be higher
if inflation comes down more quickly than expected and rising real incomes mean that
spending increases by more than anticipated, or if the world economy grows more
strongly than expected.
Upside risks to inflation include the heightened geopolitical tensions, especially in the
Middle East, which could push energy prices and freight costs higher in the near term
and disrupt global trade. Inflation could also turn out higher than anticipated if wages
increase by more than expected or profit margins prove more resilient. By contrast,
inflation may surprise on the downside if monetary policy dampens demand more than
expected, or if the economic environment in the rest of the world worsens unexpectedly.
Financial and monetary conditions
Market interest rates have been broadly stable since our March meeting and wider
financing conditions remain restrictive. The average interest rate on business loans
edged down to 5.1 per cent in February, from 5.2 per cent in January. Mortgage rates
were 3.8 per cent in February, down from 3.9 per cent in January.
Still elevated borrowing rates and associated cutbacks in investment plans led firms to
further reduce their demand for loans in the first quarter of 2024, as reported in our
latest bank lending survey. Credit standards for loans remained tight, with a further
slight tightening for lending to firms and a moderate easing for mortgages.
Against this background, credit dynamics remain weak. Bank lending to firms grew
marginally faster in February, at an annual rate of 0.4 per cent, up from 0.2 per cent in
January. Growth in loans to households remained unchanged in February, at 0.3 per
cent on an annual basis. Broad money - as measured by M3 - grew at a subdued rate
of 0.4 per cent in February.
Conclusion
The Governing Council today decided to keep the three key ECB interest rates
unchanged. We are determined to ensure that inflation returns to our two per cent
medium-term target in a timely manner. We consider that the key ECB interest rates are
at levels that are making a substantial contribution to the ongoing disinflation process.
Our future decisions will ensure that our policy rates will stay sufficiently restrictive for
as long as necessary. If our updated assessment of the inflation outlook, the dynamics
of underlying inflation and the strength of monetary policy transmission were to further
increase our confidence that inflation is converging to our target in a sustained manner,
it would be appropriate to reduce the current level of monetary policy restriction. In any
event, we will continue to follow a data-dependent and meeting-by-meeting approach to
determining the appropriate level and duration of restriction, and we are not
precommitting to a particular rate path.
In any case, we stand ready to adjust all of our instruments within our mandate to
ensure that inflation returns to our medium-term target and to preserve the smooth
functioning of monetary policy transmission.
We are now ready to take your questions.