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, 16 July 2020.
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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 Executive Vice-President, Mr Dombrovskis.
Incoming information since our last monetary policy meeting in early June signals a resumption
of euro area economic activity, although the level of activity remains well below the levels
prevailing before the coronavirus (COVID-19) pandemic and the outlook remains highly
uncertain. Both high-frequency and survey indicators bottomed out in April and showed a
significant, though uneven and partial, recovery in May and June, alongside the ongoing
containment of the virus and the associated easing of the lockdown measures. At the same time,
actual and expected job and income losses and the exceptionally elevated uncertainty about the
evolution of the pandemic and the economic outlook continue to weigh on consumer spending
and business investment. Headline inflation is being dampened by lower energy prices and price
pressures are expected to remain very subdued on account of the sharp decline in real GDP
growth and the associated significant increase in economic slack.
Against this background, ample monetary stimulus remains necessary to support the economic
recovery and to safeguard medium-term price stability. Therefore, we decided to reconfirm our
very accommodative monetary policy stance.
We will keep the key ECB interest rates unchanged. We expect them 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.
We will continue our purchases under the pandemic emergency purchase programme (PEPP)
with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary
policy stance, thereby helping to offset the pandemic-related downward shift in the projected path
of inflation. The purchases will continue to be conducted in a flexible manner over time, across
asset classes and among jurisdictions. This allows us to effectively stave off risks to the smooth
transmission of monetary policy. We will conduct net asset purchases under the PEPP until at
least the end of June 2021 and, in any case, until the Governing Council judges that the
coronavirus crisis phase is over. We will reinvest the principal payments from maturing
securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off
of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy
stance.
Net purchases under our asset purchase programme (APP) will continue at a monthly pace of
€20 billion, together with the purchases under the additional €120 billion temporary envelope until
the end of the year. We continue to expect monthly net asset purchases under the APP 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. 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.
We will also continue to provide ample liquidity through our refinancing operations. In particular,
the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III)
has registered a very high take-up of funds, supporting bank lending to firms and households.
The monetary policy measures that we have taken since early March are providing crucial
support to underpin the recovery of the euro area economy and to safeguard medium-term price
stability. In particular, they support liquidity and funding conditions in the economy, help to sustain
the flow of credit to households and firms, and contribute to maintaining favourable financing
conditions for all sectors and jurisdictions. At the same time, in the current environment of
elevated uncertainty and significant economic slack, the Governing Council remains fully
committed to doing everything necessary within its mandate to support all citizens of the euro
area through this extremely challenging time. This applies first and foremost to our role in
ensuring that our monetary policy is transmitted to all parts of the economy and to all jurisdictions
in the pursuit of our price stability mandate. The Governing Council, therefore, 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.
Let me now explain our assessment in greater detail, starting with the economic analysis.
Incoming data and survey results suggest that economic activity improved significantly in May
and June from its trough in April, alongside the ongoing containment of the virus and the
associated easing of the lockdown measures. At the same time, economic indicators remain
well below the levels recorded before the pandemic, and the recovery is in its early stages and
remains uneven across sectors and jurisdictions. After decreasing by 3.6%, quarter on quarter,
in the first quarter of 2020, euro area real GDP is expected to have contracted even further
overall in the second quarter, broadly in line with the June 2020 Eurosystem staff
macroeconomic projections. Signs of a recovery in consumption have emerged, while there has
also been a significant rebound in industrial output. At the same time, subdued labour market
conditions and precautionary household saving are weighing on consumer spending. Weak
business prospects and high uncertainty are dampening investment, while the weakness in the
global economy is hampering foreign demand for euro area goods and services.
Euro area activity is expected to rebound in the third quarter as the containment measures are
eased further, supported by favourable financing conditions, an expansionary fiscal stance and a
resumption in global activity, although uncertainty about the overall speed and scale of the
rebound remains high. In general, the extent of the contraction and the recovery will depend
crucially on the duration and effectiveness of the containment measures, the success of policies
to mitigate the adverse impact on incomes and employment, and the extent to which supply
capacity and domestic demand are permanently affected. Overall, the Governing Council
assesses the balance of risks to the euro area growth outlook to remain on the downside.
According to Eurostat's flash estimate, euro area annual HICP inflation increased to 0.3% in
June, from 0.1% in May, mainly reflecting less negative energy price inflation. On the basis of
current and futures prices for oil and taking into account the temporary reduction in the German
VAT rate, headline inflation is likely to decline again in the coming months before picking up in
early 2021. Over the medium term, weaker demand will put downward pressure on inflation,
which will be only partially offset by upward pressures related to supply constraints.
Marketbased indicators of longer-term inflation expectations have continued to increase from the
historical lows reached in mid-March, but overall remain at subdued levels. While survey-based
indicators of inflation expectations have declined since the start of the pandemic, longer-term
expectations have been less affected than short and medium-term expectations.
Turning to the broad money (M3) growth increased to 8.9% in May 2020,
monetary analysis,
from 8.2% in April. Strong money growth reflects bank credit creation, which continues to be
driven to a large extent by the acute liquidity needs in the economy. Moreover, high economic
uncertainty is triggering a shift towards money holdings for precautionary reasons. In this
environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money,
continues to be the main contributor to broad money growth.
Developments in loans to the private sector continued to be shaped by the impact of the
coronavirus on economic activity. The annual growth rate of loans to non-financial corporations
rose further to 7.3% in May 2020, from 6.6% in April, reflecting firms' need to finance their
ongoing expenditures and working capital in the context of still anaemic revenues. At the same
time, the annual growth rate of loans to households remained unchanged at 3.0% in May, after
declining for two consecutive months, amid ongoing constraints on consumption.
The results of the euro area bank lending survey for the second quarter of 2020 provide further
insights into these developments. With regard to firms, they show a continued strong upward
impact of the pandemic on demand for loans, largely driven by emergency liquidity needs, while
financing needs for fixed investment declined. Credit standards on loans to firms remained
broadly unchanged. The tightening impact of the deterioration in the economic outlook and the
associated decline in the creditworthiness of firms was broadly offset by the easing effects of
policy measures, particularly the ECB's liquidity-support measures and government guarantees
on loans. However, looking ahead, banks expect a net tightening of credit standards on loans to
firms, in part related to the expected end of the state guarantee schemes. With regard to loans to
households, credit standards tightened, reflecting in particular a deterioration in households'
income and employment prospects in the context of the pandemic.
Overall, our policy measures, together with the measures adopted by national governments and
European institutions, will continue to support access to financing, including for those most
affected by the ramifications of the pandemic.
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
necessary for the robust convergence of inflation to levels that are below, but close to, 2% over
the medium term.
Regarding fiscal policies, an ambitious and coordinated fiscal stance remains critical, in view of
the sharp contraction in the euro area economy. Measures taken in response to the pandemic
emergency should as much as possible be targeted and temporary in nature. The three safety
nets endorsed by the European Council for workers, businesses and sovereigns, amounting to a
package worth €540 billion, provide important funding support in this context. At the same time,
the Governing Council urges further strong and timely efforts to prepare and support the
recovery. We therefore strongly welcome the European Commission's Next Generation EU
proposal, which is dedicated to supporting the regions and sectors hardest hit by the pandemic,
to strengthening the Single Market and to building a lasting and prosperous recovery. It is
important for the European leaders to quickly agree on an ambitious package.
In order to reach its full potential, the European Union's Recovery and Resilience Facility will
need to be firmly rooted in sound conceived and implemented at the national
structural policies
level. Well-designed structural policies could contribute to a faster, stronger and more uniform
recovery from the crisis, thereby supporting the effectiveness of monetary policy in the euro area.
Targeted structural policies are particularly important to rejuvenate our economies, with a focus
on accelerating investment in priority areas such as the green and digital transitions.
We are now ready to take your questions.