Reuters Insider - STREAM: ECB's Draghi monthly news conference

SRM Energy

13/01/2014 14:56

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        President Mario Draghi holds a news conference    
                     following the rate setting meeting of the European 
                     Central Bank.                                     
 
 
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Transcript (May be auto-generated)

 First and foremost, happy new year to all of you, friends. And now I can proceed
with our statement, the introductory statement. Ladies and gentlemen, the Vice 
President and I are very pleased to welcome you to our press conference. Let me 
wish you all a happy new year, which as I've done. I would also like to take 
this opportunity to welcome Latvia as the 19th country to adopt the Euro as its 
currency. 

Accordingly, Mr. Rimsevics, the governor of Latvijas Bank, became a member of 
the Governing Council on January 1, 2014. 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. 
Incoming information and analysis have continued to confirm our previous 
assessment. Underlying price pressures in the Euro area are expected to remain 
subdued over the medium term. In keeping with this picture, monetary and credit 
dynamics remain subdued. At the same time, inflation expectations for the Euro 
area over the - over the medium to long term are firmly anchored in line with 
our aim of maintaining inflation rates below, but close to, 2%. Such a 
constellation continues to suggest that we may experience a prolonged period of 
low inflation, to be followed by a gradual upward movement towards inflation 
rates below, but close to, 2% later on. Against this background, the Governing 
Council strongly emphasizes that it will maintain an accommodative stance of 
monetary policy for as long as necessary, which will assist the gradual economic
recovery in the Euro area. Accordingly, we firmly - we firmly reiterate our 
forward guidance that we continue to expect the key ECB interest rates to remain
at present or lower levels for an extended period of time. As previously stated,
this expectation is based on an overall subdued outlook for inflation extending 
into the medium term, given the broad-based weakness of the economy and subdued 
monetary dynamics. With regard to money market conditions and their potential 
impact on our monetary policy stance, we are monitoring - we are monitoring 
developments closely and are ready to consider all available instruments. 
Overall, we remain determined to maintain the high degree of monetary 
accommodation and to take further decisive action, if required. Let me now 
explain our assessment in greater detail, starting with the economic analysis. 
Real GDP in the Euro area rose by 0.1% quarter on quarter in the third quarter 
of 2013, following an increase of 0.3% in the second quarter. While developments
in industrial production data for October point to a weak start to the fourth 
quarter, survey-based confidence indicators up to December have improved further
from low levels, overall indicating a continuation of the gradual recovery in 
economic activity. Looking at 2014 and 2015, output is expected to recover at a 
slow pace, in particular owing to some improvement in domestic demand supported 
by the accommodative monetary policy stance. Euro area economic activity should,
in addition, benefit from a gradual strengthening of demand for exports. 
Furthermore, the overall improvements in financial markets since - seen since 
the summer of 2012 appear to be working their way through to the real economy, 
as should the progress made in fiscal consolidation. In addition, real incomes 
have benefited recently from lower energy price inflation. At the same time, 
unemployment in the Euro area remains high, and the necessary balance sheet 
adjustments in the public and the private sector will continue to weigh on 
economic activity. The risks surrounding the economic outlook for the Euro area 
continue to be on the downside. Developments in global money and financial 
market conditions and related uncertainties may have the potential to negatively
affect economic conditions. Other downside risks include higher commodity 
prices, weaker than expected domestic demand and export growth, and slow or 
insufficient implementation of structural reforms in Euro area countries. 
According to Eurostat's flash estimate, Euro area annual HICP inflation was 0.8%
in December 2013, compared with 0.9% in November. This outcome was broadly as 
expected and reflected lower services price inflation. On the basis of 
prevailing futures prices for energy, annual inflation rates are expected to 
remain at around current levels in the coming months. Over the medium term, 
underlying price pressures in the euro area are expected to remain subdued. At 
the same time, inflation expectations for the Euro area over the medium to long 
term continue to be firmly anchored in line with our aim to maintaining - of 
maintaining inflation rates below, but close to, 2%. The risks to the outlook 
for price developments continue to be seen as broadly balanced over the medium 
term, with upside risks relating to higher commodity prices and stronger than 
expected increases in administered prices and indirect taxes, and downside risks
stemming from weaker than expected economic activity. Turning to the monetary 
analysis, data for November support the assessment of continued subdued 
underlying growth in broad money and credit. Annual growth in M3 was broadly 
unchanged at 1.5% in November, after 1.4% in October, following two consecutive 
declines in September and August. Annual growth in M1 remained strong at 6.5%, 
reflecting a preference for liquidity, although it was below the peak of 8.7% 
observed in April 2013. As in previous months, the main factor supporting annual
M3 growth was an increase in the MFI net external asset position, which 
continued to reflect the increased interest of international investors in Euro 
area assets. The annual rate of change of loans to the private sector remained 
weak. The annual growth rate of loans to households stood at 0.3% in November, 
broadly unchanged since the beginning of 2013, but the annual rate of change of 
loans to non-financial corporations was -3.1% in November, following -3.0% in 
October. Overall, weak loan dynamics for non-financial corporations continue to 
reflect their lagged relationship with the business cycle, credit risk, and the 
ongoing adjustment of financial and non-financial sector balance sheets. Since 
the summer of 2012, substantial progress has been made in improving the funding 
conditions of banks. In order to ensure an adequate transmission of monetary 
policy to the financing conditions in Euro area countries, it is essential that 
the fragmentation of Euro area credit markets declines further and that the 
resilience of banks is strengthened where needed. The forthcoming comprehensive 
assessment by the ECB will further support this confidence-building process. It 
will enhance the quality of information available on the condition of banks and 
result in the identification and implementation of necessary corrective actions.
A timely implementation of further steps to establish a banking union will help 
to restore confidence in the financial system. To sum up, the economic analysis 
indicates that we may experience a prolonged period of low inflation, to be 
followed by a gradual upward movement towards inflation rates below, but close 
to, 2% later on. A cross-check with the signals from the monetary analysis 
confirms this picture. As regards fiscal policies, it is important not to 
unravel past efforts, but to sustain fiscal consolidation over the medium term. 
Fiscal strategies should be in line with the fiscal compact and should ensure a 
growth-friendly composition of consolidation which combines improving the 
quality and efficiency of public services with minimizing distortionary effects 
of taxation. When accompanied by the decisive implementation of structural 
reforms, this will further support the gradual economic recover