Mario Draghi: ECB press conference - introductory statement
Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Luis
de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 12 September
2019.
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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 have conducted a thorough
assessment of the economic and inflation outlook, also taking into account the latest staff
macroeconomic projections for the euro area. As a result, the Governing Council took the
following decisions in pursuit of its price stability objective.
First, as regards the we decided to lower the interest rate on the
key ECB interest rates,
deposit facility by 10 basis points to -0.50%. The interest rate on the main refinancing operations
and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00%
and 0.25% respectively. We now expect the key ECB interest rates to remain at their present or
lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close
to, but below, 2% within our projection horizon, and such convergence has been consistently
reflected in underlying inflation dynamics.
Second, the Governing Council decided to restart net purchases under its asset purchase
programme (APP) at a monthly pace of €20 billion as from 1 November. We expect them to run
for as long as necessary to reinforce the accommodative impact of our policy rates, and to end
shortly before we start raising the key ECB interest rates.
Third, we intend to continue reinvesting, in full, the principal payments from maturing securities
purchased under the APP for an extended period of time past the date when we start raising the
key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity
conditions and an ample degree of monetary accommodation.
Fourth, we decided to change the modalities of the new series of quarterly targeted longer-term
refinancing operations (TLTRO III) to preserve favourable bank lending conditions, ensure the
smooth transmission of monetary policy and further support the accommodative stance of
monetary policy. The interest rate in each operation will now be set at the level of the average
rate applied in the Eurosystem's main refinancing operations over the life of the respective
TLTRO. For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO
III operations will be lower, and can be as low as the average interest rate on the deposit facility
prevailing over the life of the operation. The maturity of the operations will be extended from two
to three years.
Fifth, in order to support the bank-based transmission of monetary policy the Governing Council
decided to introduce a two-tier system for reserve remuneration in which part of banks' holdings
of excess liquidity will be exempt from the negative deposit facility rate.
Separate press releases with further details of the measures taken by the Governing Council will
be published this afternoon at 15:30 CET.
The Governing Council reiterated the need for a highly accommodative stance of monetary policy
for a prolonged period of time and continues to stand ready to adjust all of its instruments, as
appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its
commitment to symmetry.
Today's decisions were taken in response to the continued shortfall of inflation with respect to
our aim. In fact, incoming information since the last Governing Council meeting indicates a more
protracted weakness of the euro area economy, the persistence of prominent downside risks
and muted inflationary pressures. This is reflected in the new staff projections, which show a
further downgrade of the inflation outlook.
At the same time, robust employment growth and increasing wages continue to underpin the
resilience of the euro area economy. With today's comprehensive package of monetary policy
decisions, we are providing substantial monetary stimulus to ensure that financial conditions
remain very favourable and support the euro area expansion, the ongoing build-up of domestic
price pressures and, thus, the sustained convergence of inflation to our medium-term inflation
aim.
Let me now explain our assessment in greater detail, starting with the Euro
economic analysis.
area real GDP increased by 0.2%, quarter on quarter, in the second quarter of 2019, following a
rise of 0.4% in the previous quarter. Incoming economic data and survey information continue to
point to moderate but positive growth in the third quarter of this year. This slowdown in growth
mainly reflects the prevailing weakness of international trade in an environment of prolonged
global uncertainties, which are particularly affecting the euro area manufacturing sector.
At the same time, the services and construction sectors show ongoing resilience and the euro
area expansion is also supported by favourable financing conditions, further employment gains
and rising wages, the mildly expansionary euro area fiscal stance and the ongoing - albeit
somewhat slower - growth in global activity.
This assessment is broadly reflected in the September 2019 ECB staff macroeconomic
projections for the euro area. These projections foresee annual real GDP increasing by 1.1% in
2019, 1.2% in 2020 and 1.4% in 2021. Compared with the June 2019 staff macroeconomic
projections, the outlook for real GDP growth has been revised down for 2019 and 2020.
The risks surrounding the euro area growth outlook remain tilted to the downside. These risks
mainly pertain to the prolonged presence of uncertainties, related to geopolitical factors, the rising
threat of protectionism and vulnerabilities in emerging markets.
According to Eurostat's flash estimate, euro area annual HICP inflation was 1.0% in August 2019,
unchanged from July. Lower energy inflation was offset by higher food inflation, while the rate of
HICP inflation excluding food and energy was unchanged. On the basis of current futures prices
for oil, headline inflation is likely to decline before rising again towards the end of the year.
Measures of underlying inflation remained generally muted and indicators of inflation expectations
stand at low levels. While labour cost pressures strengthened and broadened amid high levels of
capacity utilisation and tightening labour markets, their pass-through to inflation is taking longer
than previously anticipated. Over the medium term underlying inflation is expected to increase,
supported by our monetary policy measures, the ongoing economic expansion and robust wage
growth.
This assessment is also broadly reflected in the September 2019 ECB staff macroeconomic
projections for the euro area, which foresee annual HICP inflation at 1.2% in 2019, 1.0% in 2020
and 1.5% in 2021. Compared with the June 2019 staff macroeconomic projections, the outlook
for HICP inflation has been revised down over the whole projection horizon, reflecting lower
energy prices and the weaker growth environment.
Turning to the monetary analysis, broad money (M3) growth increased to 5.2% in July 2019,
after 4.5% in June. Sustained rates of broad money growth reflect ongoing bank credit creation
for the private sector and low opportunity costs of holding M3. The narrow monetary aggregate
M1 continues to be the main contributor to broad money growth on the components side.
The annual growth rate of loans to non-financial corporations remained unchanged at 3.9% in
July 2019. The annual growth rate of overall loans to non-financial corporations continues to be
solid, although short-term loans - which are more sensitive to the cycle - show signs of
weakness. The annual growth rate of loans to households stood at 3.4% in July, after 3.3% in
June, continuing its gradual improvement. Overall, loan growth is still benefiting from historically
low bank lending rates.
The monetary policy measures we have taken today, including the more accommodative terms
of the new series of TLTROs, will help to safeguard favourable bank lending conditions and will
continue to support access to financing, in particular for small and medium-sized enterprises.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming
from the monetary analysis confirmed that an ample degree of monetary accommodation is still
necessary for the continued sustained convergence of inflation to levels that are below, but close
to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must
contribute more decisively to raising the longer-term growth potential, supporting aggregate
demand at the current juncture and reducing vulnerabilities. The implementation of structural
policies in euro area countries needs to be substantially stepped up to boost euro area
productivity and growth potential, reduce structural unemployment and increase resilience. The
2019 country-specific recommendations should serve as the relevant signpost.
Regarding fiscal policies, the mildly expansionary euro area fiscal stance is currently providing
some support to economic activity. In view of the weakening economic outlook and the continued
prominence of downside risks, governments with fiscal space should act in an effective and
timely manner. In countries where public debt is high, governments need to pursue prudent
policies that will create the conditions for automatic stabilisers to operate freely. All countries
should reinforce their efforts to achieve a more growth-friendly composition of public finances.
Likewise, the transparent and consistent implementation of the European Union's fiscal and
economic governance framework over time and across countries remains essential to bolster
the resilience of the euro area economy. Improving the functioning of Economic and Monetary
Union remains a priority. The Governing Council welcomes the ongoing work and urges further
specific and decisive steps to complete the banking union and the capital markets union.
We are now at your disposal for questions.