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, 12 March
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.
Since our last Governing Council meeting in late January, the spread of the coronavirus
(COVID19) has been a major shock to the growth prospects of the global and euro area economies and
has heightened market volatility. Even if ultimately temporary in nature, it will have a significant
impact on economic activity. In particular, it will slow down production as a result of disrupted
supply chains and reduce domestic and foreign demand, especially through the adverse impact
of the necessary containment measures. In addition, the heightened uncertainty negatively
affects expenditure plans and their financing.
Governments and all other policy institutions are called upon to take timely and targeted actions
to address the public health challenge of containing the spread of the coronavirus and mitigate its
economic impact. In particular, an ambitious and coordinated fiscal policy response is required to
support businesses and workers at risk. The Governing Council strongly supports the
commitment of euro area governments and the European Institutions to joint and coordinated
policy action in response to the repercussions of the spread of the coronavirus. We also
welcome the decisions taken by the ECB's Supervisory Board, which are detailed in a separate
press release published earlier today.
In line with our mandate, the Governing Council is determined to support households and firms in
the face of the current economic disruptions and heightened uncertainty. Accordingly, we
decided on a comprehensive package of monetary policy measures. Together with the
substantial monetary policy stimulus already in place, these measures will support liquidity and
funding conditions for households, businesses and banks and will help to preserve the smooth
provision of credit to the real economy.
First, we decided to conduct, temporarily, additional longer-term refinancing operations (LTROs)
to provide immediate liquidity support to the euro area financial system. Although we do not see
material signs of strains in money markets or liquidity shortages in the banking system, these
operations will provide an effective backstop in case of need. They will be carried out through a
fixed rate tender procedure with full allotment, with an interest rate that is equal to the average
rate on the deposit facility. The LTROs will provide liquidity at favourable terms to bridge the
period until the TLTRO III operation in June 2020.
Second, the Governing Council decided to apply considerably more favourable terms during the
period from June 2020 to June 2021 to all TLTRO III operations outstanding during that same
time. These operations will support bank lending to those affected most by the spread of the
coronavirus, in particular small and medium-sized enterprises. Throughout this period, the
interest rate on these TLTRO III operations will be 25 basis points below the average rate applied
in the Eurosystem's main refinancing operations. For counterparties that maintain their levels of
credit provision, the rate applied in these operations will be lower, and, over the period ending in
June 2021, can be as low as 25 basis points below the average interest rate on the deposit
facility. Moreover, the maximum total amount that counterparties will henceforth be entitled to
borrow in TLTRO III operations is raised to 50% of their stock of eligible loans as at 28 February
2019. In this context, the Governing Council will mandate the Eurosystem committees to
investigate collateral easing measures to ensure that counterparties continue to be able to make
full use of our funding support.
Third, we decided to add a temporary envelope of additional net asset purchases of €120 billion
until the end of the year, ensuring a strong contribution from the private sector purchase
programmes. In combination with the existing asset purchase programme (APP), this will
support favourable financing conditions for the real economy in times of heightened uncertainty.
We continue to expect net asset purchases 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.
In addition, the Governing Council decided to 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 also 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.
Further details on the precise terms of our new operations will be published in dedicated press
releases this afternoon at 15:30 CET.
In view of current developments, the Governing Council will continue to monitor closely the
implications of the spread of the coronavirus for the economy, for medium-term inflation and for
the transmission of its monetary policy. The Governing Council stands 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. The
latest indicators suggest a considerable worsening of the near-term growth outlook. The
disruption of supply chains is impeding production plans in the manufacturing sector, while
necessary containment measures against the further spread of the coronavirus are adversely
affecting economic activity. Before the coronavirus outbreak, euro area real GDP growth
moderated to 0.1%, quarter on quarter, in the fourth quarter of 2019, following growth of 0.3% in
the third quarter. This mainly reflected the ongoing weakness in the euro area manufacturing
sector and slowing investment growth. Looking beyond the disruption stemming from the
coronavirus, euro area growth is expected to regain traction over the medium term, supported by
favourable financing conditions, the euro area fiscal stance and the expected resumption in
global activity.
This assessment is only partly reflected in the March 2020 ECB staff macroeconomic
projections for the euro area, as their data cut-off date predates the most recent rapid spread of
the coronavirus to the euro area. These projections foresee annual real GDP increasing by 0.8%
in 2020, 1.3% in 2021 and 1.4% in 2022. In particular, the projections foresee very muted growth
in the first half of 2020, followed by an improvement in the second half of the year. Compared
with the December 2019 Eurosystem staff macroeconomic projections, the outlook for real GDP
growth has been revised down notably for 2020 and slightly for 2021, on account of the potential
economic impact of the coronavirus outbreak.
The risks surrounding the euro area growth outlook are clearly on the downside. In addition to the
previously identified risks related to geopolitical factors, rising protectionism and vulnerabilities in
emerging markets, the spread of the coronavirus adds a new and substantial source of
downside risk to the growth outlook.
According to Eurostat's flash estimate, euro area annual HICP inflation decreased to 1.2% in
February 2020, from 1.4% in January. On the basis of the sharp decline in current and futures
prices for oil, headline inflation is likely to decline considerably over the coming months.
Indicators of inflation expectations have fallen and measures of underlying inflation remain
generally muted. While labour cost pressures have so far remained resilient amid tighter labour
markets, the weaker growth momentum is delaying their pass-through to inflation. Over the
medium term, the increase in inflation will be supported by our monetary policy measures and
the recovery in euro area growth dynamics.
This assessment is only partly reflected in the March 2020 ECB staff macroeconomic
projections for the euro area, which foresee annual HICP inflation at 1.1% in 2020, 1.4% in 2021
and 1.6% in 2022. Compared with the December 2019 Eurosystem staff macroeconomic
projections, the outlook for HICP inflation is broadly unrevised over the projection horizon. The
implications of the coronavirus for inflation are surrounded by high uncertainty, given that
downward pressures linked to weaker demand may be offset by upward pressures related to
supply disruptions. The recent sharp decline in oil prices poses significant downside risks to the
short-term inflation outlook.
Turning to the monetary analysis, broad money (M3) growth stood at 5.2% in January 2020,
having moderated somewhat from its recent peak. Money growth continues to reflect ongoing
bank credit creation for the private sector and low opportunity costs of holding M3 relative to other
financial instruments. The narrow monetary aggregate M1 continues to be the main contributor to
broad money growth.
Loans to the private sector continued to expand. The annual growth rate of loans to households
picked up somewhat to 3.7% in January 2020, from 3.6% in December 2019. The annual growth
rate of loans to non-financial corporations remained unchanged at 3.2% in January, confirming
the moderation seen since autumn 2019 and likely reflecting the typically lagged reaction to the
past weakening in the economy. Overall, our accommodative monetary policy stance, including
the measures taken today, will safeguard favourable bank lending conditions and will continue to
support access to financing, including for those affected most by the ramifications of the
coronavirus and, 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
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 is now needed in view of
the weakened outlook and to safeguard against the further materialisation of downside risks. We
welcome the measures already taken by several governments to ensure sufficient health sector
resources and to provide support to affected companies and employees. In particular, measures
such as providing credit guarantees are needed to complement and reinforce the monetary
policy measures taken today. We welcome the commitment of the euro area governments and
the European Institutions to act now, strongly, and together in response to the repercussions of
the further spread of the coronavirus.
Before we take your questions, we would like to express our profound gratitude to all those who
are dedicating their time and efforts in saving lives and containing the spread of the coronavirus.