mario draghi : ecb press conference – introductory statement introductory statement by mr mario draghi, president of the european central bank, and mr vitor constancio, vice - president of the european central bank, frankfurt am main, 8 march 2012. * * * 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 decided to keep the key ecb interest rates unchanged. the information that has become available since the beginning of february has confirmed our previous assessment of the outlook for economic activity. available survey indicators confirm signs of a stabilisation in the euro area economy. however, the economic outlook is still subject to downside risks. owing to rises in energy prices and indirect taxes, inflation rates are now likely to stay above 2 % in 2012, with upside risks prevailing. nevertheless, we expect price developments to remain in line with price stability over the policy - relevant horizon. the underlying pace of monetary expansion remains subdued, consistent with contained inflationary pressures over the medium term. looking ahead, we are firmly committed to maintaining price stability in the euro area, in line with our mandate. to this end, the continued firm anchoring of inflation expectations – in line with our aim of maintaining inflation rates below, but close to, 2 % over the medium term – is of the essence. over recent months, a wide range of additional non - standard monetary policy measures has been implemented by the eurosystem. these measures, including in particular two three - year longer - term refinancing operations, were decided upon against the background of exceptional circumstances in the last quarter of 2011. the first impact of these measures has been positive. together with fiscal consolidation and stepped - up structural reforms in several euro area countries, as well as progress towards a stronger euro area economic governance framework, they have contributed to a significant improvement in the financial environment over recent months. we expect that the three - year longer - term refinancing operations will provide further support for the ongoing stabilisation in financial markets and, in particular, for lending activity in the euro area. all our non - standard monetary policy measures are temporary in nature. furthermore, all the necessary tools to address potential upside risks to medium - term price stability are fully available. let me now explain our assessment in greater detail, starting with the economic analysis. real

in tandem, the policy rate of this central bank would have to be changed frequently and forcefully in the same direction to offset the shock. but what would happen in the other economy, if it – unlike the first – were more prone to supply shocks? experience suggests that supply shocks yield sharp transitory increases in inflation, possibly followed by smaller, more permanent “ secondround ” effects, though the longer - run impact on inflation is obviously significantly determined by the response of monetary policy. given the transitory nature of the initial inflation bursts, the simple hypothetical rule – which incorporates the reaction to expected inflation – would advise the central bank to “ look through ” the immediate disturbance and change policy only to the extent needed to offset the anticipated more permanent effects of the shock on inflation in subsequent quarters. its policy rate, again, would be observed to be less variable. what is important to note is that the same rule – equally active strategies – would support two different patterns of observed policy behaviour in different economic environments. the third case is perhaps the most interesting of all. here exogenous shocks are identical, but economic structures differ. different transmission mechanisms therefore propagate the same shocks with lags that vary between the two economies. the first economy has more rigid adjustment mechanisms : price - setters and wage - negotiators are more sluggish than those in the other economy in processing economic news – including changes in the stance of monetary policy – and bringing them to bear on their decisions. what is the source of those rigidities in the first economy? there can be many reasons for rigidity. perhaps labour practices and contractual institutions – dating from the early post - war decades when the economy was heavily regulated – induce distortions in large a similar interpretation of “ interest rate inertia ” – the tendency of central banks to adjust rates in the same direction and in small steps – can be found in g. rudebusch, “ term structure evidence on interest rate smoothing and monetary policy inertia ”, journal of monetary economics, vol. 49 ( pp. 1161 - 1187 ), 2002. segments of the labour market. this stands in the way of an efficient matching of skills and productive capabilities. perhaps tight regulatory restraint on business and statutory inhibitions discourage innovation and impede a faster response to new shocks and new opportunities. whatever the source of rigidity, the observational result is that prices and wages in the first economy reflect changes in fundamentals with considerable lags. how should