["Ladies and gentlemen, I am here today to report on the outcome of the first meetings of the three decision-making bodies of the ECB: the General Council; the Governing Council; and, the Executive Board; all of which, in accordance with the ESCB/ECB Statute, are chaired by me, as President of the ECB, or, in my absence, by the Vice-President, who is sitting next to me.","I may recall that the Heads of State or Government appointed six members to the Executive Board of the ECB, including the President and the Vice-President, as from 1 June 1998, which thus constitutes the date of establishment not only of the ECB but also of the ESCB. I may also recall that on 4 June 1998 the Executive Board released a press statement announcing its 2 June 1998 decision on the distribution of responsibilities among its members for the business areas of the ECB.","In subsequent meetings of the Executive Board the first meetings of the Governing and the General Councils were prepared. The first meetings of both bodies were held earlier today.","Further information about the members of the decision-making bodies of the ECB, about the constitution of the ESCB, about its objectives and tasks, and about its organisation has been made available in a press folder and can also be found on the ECB’s Web site [section About the ECB].","The General Council, which includes all fifteen EU national central bank governors, provisionally adopted its own Rules of Procedure. They will be formally approved at the next meeting of the General Council.","In accordance with Article 47 of the ESCB/ECB Statute, the General Council also made a contribution to the decision-making of the Governing Council. For this reason the General Council met before the Governing Council.","The contribution consisted in delivering opinions on two important institutional matters: (i) the key for the subscription of the capital of the ECB;","(ii) the Conditions of Employment of ECB staff. At the end of its meeting, the General Council agreed, for the remainder of this year, to meet on 1 September 1998 and on 1 December 1998.","Following the meeting of the General Council, the Governing Council met for the first time in its composition of the six members of the Executive Board and the governors of the eleven national central banks of the euro area. Mr. de Silguy participated in the meeting as a member of the European Commission; the President of the EU Council, who also has a right to attend, did not participate.","The Governing Council: (i) took note of the Rules of Procedure of the European Central Bank, as proposed by the Executive Board, and will revert to them at its next meeting;","(ii) it adopted three Decisions: - the first Decision relates to the method to be applied for determining the national central banks’ percentage shares in the key for the ECB’s capital. Application of this method has resulted in shares for the fifteen EU national central banks being determined with a level of precision of four decimal places; I will not read out the details, however, this information is being made available.","- the second Decision relates to the measures necessary for the paying up of the capital of the ECB. It has been decided that the eleven national central banks of the euro area will pay up in full their respective subscriptions to the ECB’s capital according to the key established in the preceding Decision and that they will do so by 1 July 1998. As a result, the ECB will be endowed with an initial capital of slightly under EUR 4 billion;","- the third Decision consists in recommending to the Council of the European Union the first external auditor of the European Central Bank.","These and future Decisions will obviously be published in the Official Journal of the European Communities for general notice. The Governing Council also decided on a number of organisational matters: (i) it laid down the Conditions of Employment of the staff of the European Central Bank;","(ii) it provisionally agreed on a budget for the European Central Bank for the second half of 1998, which will be formally adopted at the next meeting;","(iii) it agreed on the framework for the organisation of the overall testing of ESCB-wide systems and procedures which will be conducted in the second half of this year, so as to ensure that the ESCB is in a position to undertake its tasks as from 1 January 1999.","Furthermore, the Governing Council decided on two specific issues relating to the preparation of Stage Three: (i) with respect to the TARGET system, a pricing policy was agreed, the main element of which is the degressive tariff that will be applied to payment transactions flowing through this system. A separate press release, which will be made available in all Community languages, will provide further details on this matter;","(ii) with respect to the euro banknotes, a largely decentralised approach for the initial supply of such banknotes has been agreed upon. This means that each of the eleven national central banks of the euro area will be free to organise the industrial process for the production of the euro banknotes needed to replace their national banknotes. In other words, each national central bank may produce all of the relevant euro banknotes itself or, alternatively, it may enter into bilateral pooling arrangements.","In addition, the Governing Council was consulted by the Executive Board on the organisational structure of the ECB. The Governing Council took note of, and agreed with, this structure, information about which is being made available. The Governing Council also agreed with the proposals of the Executive Board as regards the appointment of ECB Managers. I should like to point out that, of the fifty-five managerial positions in the ECB, forty-nine will be recruited from the current EMI staff.","Finally, the Governing Council decided, for the remainder of this year, to meet in any event on the first Tuesday of every month, with the exception of the month of August. Thus the next meeting of the Governing Council is scheduled for 7 July 1998. Before that date, more precisely on 30 June 1998, there will be a ceremony to be held in the Alte Oper in Frankfurt to mark the establishment of the ESCB.","For the remainder of this year the Governing Council will have to decide on all elements of the so-called regulatory, organisational and logistical framework necessary for the ESCB to perform its tasks in Stage Three, which the EMI has prepared in accordance with the Treaty. To this end, the Executive Board is currently preparing a work programme, which will cover, inter alia, such items as:","(i) the decision on whether or not to introduce a minimum reserve system and the specification of its features;","(ii) the monetary policy strategy;","(iii) the procedural rules for the administration of ERM2;","(iv) the transfer of foreign reserve assets to the ECB;","(v) the provision of intraday liquidity to non-euro area national central banks of the EU in the TARGET system;","(vi) the technical specification for the euro banknotes;","(vii) the scope and format of the financial reporting of the ESCB;","(viii) the allocation of the ESCB’s monetary income.","You will understand that, after nine days of ECB existence, I am not yet in a position to give you further details on the precise timing of the decision-making on the above and many other items to be addressed by the Governing Council.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of the second meeting of the Governing Council of the European Central Bank held yesterday.","The Governing Council first assessed current economic developments in the euro area. The general picture is one of continued economic expansion combined with broadly low inflation.","Several forecasts made during spring 1998 have even suggested slightly lower rates of inflation for 1998-99 compared with expectations in autumn 1997. As far as price developments are concerned, inflation as measured by the harmonised consumer price index (HICP) is estimated to have risen slightly in April, to 1.4%, but has not increased further in May.","Output growth has remained strong in recent quarters, with annual growth rates close to or even exceeding 3%. Economic growth has been driven increasingly by domestic demand rather than net exports, as might be expected at this stage of the cycle. Private consumption and stockbuilding have been the main factors underlying domestic demand to date.","The favourable conjunctural situation has started to feed through into the labour market, although improvements here have in some countries been too slow to appear. It is evident, however, that economic growth alone will not reduce the urgency to proceed with structural adjustments in order to tackle unacceptably high rates of unemployment.","As regards monetary and financial developments in the euro area, the annual growth rate of the broad money supply (M3H) accelerated in April to around 6% from 5.5% in March. The growth rate of M1, the narrow money supply, also picked up, to around 10%. We shall monitor these developments very carefully.","In principle, the economic performance I have just described provides a favourable environment for continued fiscal consolidation. It is with some concern that we observe that in a number of member countries the prospects for this to actually develop seem to be, to put it mildly, rather subdued.","In this respect, I should like to underline three aspects. First, any \"growth dividend\" resulting from the current cyclical upturn should be used to bring deficit and debt levels down, rather than relaxing control over expenditure. Second, most Member States need to go a step further, and indeed improve structural balances as they are not yet in compliance with the obligations under the Stability and Growth Pact. This implies that the benchmark for fiscal policy must now be a budget close to balance or in surplus - in surplus especially in countries with high ratios of debt to GDP. Third, further structural adjustments in fiscal policy would also help to improve the policy mix in some countries and in the euro area as a whole from the start of Stage Three.","I would not at the present time want to try to convey too strong an impression of the implications of these various economic developments for the appropriate stance of monetary policies in euro area Member States. Although the responsibility for these policies remains with national central banks until the end of this year, the Governing Council had an extensive and thorough discussion on a euro area perspective of monetary policy. We will continue to study this issue closely before we enter the regime of a single monetary policy. For the time being, it is encouraging to see the credibility of monetary policy being reflected in the exchange rates of euro countries. There is currently no sign of exchange rate tensions among euro area currencies. Forward exchange rates are expected to be virtually identical to central rates, suggesting that the pre-announced rates are considered credible. I consider this a remarkable achievement.","Following its review of economic developments, the Governing Council settled a number of organisational issues.","It adopted the Rules of Procedure of the European Central Bank. These will be published in the Official Journal of the European Communities;","It approved, in accordance with the Rules of Procedure, the establishment of eleven ESCB committees to assist in the work of the European System of Central Banks (ESCB). The committees are as follows (listed in alphabetical order): Accounting and Monetary Income Committee, Banking Supervision Committee, Banknote Committee, External Communications Committee, Information Technology Committee, Internal Auditors Committee, Legal Committee, Market Operations Committee, Monetary Policy Committee, Payment and Settlement Systems Committee, and Statistics Committee;","It formally adopted a budget for the European Central Bank for the second half of 1998 and agreed on the establishment of a Budget Committee to assist the Governing Council in ECB budget-related matters;","It laid down specific rules applicable to staff transferring from the European Monetary Institute to the European Central Bank. ECB Decisions relating to the Conditions of Employment will be published in the Official Journal of the European Communities.","The Governing Council also took a number of decisions relating to various aspects of its preparatory work for Stage Three.","The Governing Council decided on the introduction of a minimum reserve system by the ESCB at the start of Stage Three. Among the three main functions that a minimum reserve system could usefully perform, the Governing Council attaches particularly high importance to its contributions to the stabilisation of money market interest rates and to the enlargement of the demand for central bank money by creating or enlarging a structural liquidity shortage in the market.","In the light of the potential burden which a minimum reserve system could impose on the private sector and the effects it might have on the financial activity of credit institutions in the euro area, the Governing Council has decided on features which fulfil the two money market management purposes outlined above, while at the same time allowing an adequate remuneration of minimum reserves.","A number of details of the minimum reserve system that will be applied were already specified in previous documents published by the European Monetary Institute. Additional features agreed upon yesterday include the liability base, the lump-sum allowance and the rate of remuneration. With regard to the latter, the ECB will remunerate minimum reserve holdings at a level corresponding to the rate of its main refinancing operations. The Governing Council intends to decide on the exact specification of the minimum reserve system in November 1998 at the latest. This decision, in particular as regards the reserve ratio (which is currently defined within a range of 1.5% - 2.5%), will be based on the early data from the new system for money and banking statistics.","Further details are provided in the separate press release that is being issued to you this morning.","It is intended that the precise features of the minimum reserve system will be published in the form of an EU Council Regulation. For this purpose, the Governing Council adopted an ECB Recommendation for an EU Council Regulation on the application of minimum reserves by the European Central Bank. In accordance with the provisions of the Statute of the ESCB, the EU Council, acting by a qualified majority and after consulting the European Parliament and the Commission, is expected to adopt this Regulation.","The Governing Council also adopted ECB Recommendations for EU Council Regulations concerning the collection of statistical information by the ECB and concerning the powers of the ECB to impose sanctions. All three ECB Recommendations will be published in the Official Journal of the European Communities for general notice.","The Governing Council decided on the size and form of the initial transfer of foreign reserve assets to the European Central Bank from the national central banks participating in the euro area. This transfer is to take place on the first day of 1999. It has been decided that the initial transfer will be to the maximum allowed amount of EUR 50 billion, adjusted downwards by deducting the shares in the ECB's capital subscription key of the EU central banks which will not participate in the euro area at the outset. The transfer will thus be equal to 78.9153% of EUR 50 billion, i.e. approximately EUR 39.46 billion.","The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.","The precise modalities of the initial transfer will be finalised before the end of the year.","Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks -including gold - to approval by the ECB.","In connection with the setting-up of common market standards, the Governing Council also reached agreement on a number of issues related to the quotation and publication of reference exchange rates for the euro. Specifically, it was agreed to recommend to market participants the \"certain\" method for quoting the exchange rates for the euro (i.e. 1 euro = X foreign currency units) and to have daily reference exchange rates for the euro computed and published by the ECB.","Further details are provided in the separate press release that is being issued to you this morning.","The Governing Council decided on the conditions for the participation of the non-euro area EU central banks and credit institutions in the TARGET (Trans-European Automated Real-time Gross settlement Express Transfer) system. In TARGET the ESCB will provide central bank liquidity in the course of the day (i.e. intraday liquidity) to the extent necessary to avoid delays in the execution of payment orders. If intraday liquidity is not reimbursed at the end of the day it becomes overnight credit granted by the ESCB, which, for evident monetary policy reasons, cannot be offered to institutions outside the euro area. Nonetheless, non-euro area EU central banks and institutions in those countries will be connected to TARGET.","The Governing Council considered that giving such institutions outside the euro area unlimited access to intraday credit would have created risks for the conduct of monetary policy that it was not ready to take. A facility will therefore be put in place to enable the non-euro area EU central banks to provide collateralised intraday credit in euro to their credit institutions, subject to a ceiling both at the level of the non-euro area EU central banks and at that of non-euro area credit institutions. There will also be a liquidity deadline, set at 5 p.m., for non-euro area credit institutions so that they do not incur an overnight overdraft in euro.","Further details are provided in the separate press release that is being issued to you this morning.","The Governing Council also agreed that a report on recent developments in the field of electronic money - and their monetary policy implications - would be published in September 1998.","Finally, the Governing Council agreed on a number of legal instruments aimed at enhancing the protection of euro banknotes. In particular, an ECB Decision on the denominations, specifications, reproduction, exchange and withdrawal of banknotes has been adopted, as well as an ECB Recommendation regarding the adoption of certain measures to enhance the legal protection of euro banknotes and coins. Both documents will be published for general information in the Official Journal of the European Communities.","Further details are provided in the separate press release that is being issued to you this morning.","We are at your disposal for further questions.","Ladies and gentlemen, the Vice-President and I are here today to report not only on the outcome of today’s meeting of the Governing Council of the European Central Bank, but also - as you are already aware - on the outcome of the meetings of the Governing Council and the General Council that took place on 1 September 1998. It was in view of the short time span between the two sets of meetings that we decided that it would be more efficient to hold only one press conference to provide you with a summary of our deliberations.","It is my intention to continue this practice for the remaining meetings of this year. In this regard, the Governing Council will meet, not only as scheduled on 13 October, 3 November and 1 December 1998, but there will also be an additional meeting on Tuesday, 22 December 1998. By this time, the bulk of nearly five years of preparatory work - including the \"EMI years\" - will be behind us and I envisage that the Governing Council’s final meeting before the start of Stage Three of Economic and Monetary Union (EMU) will be devoted to fine-tuning its last-minute preparations. You will recall that monetary policy decisions remain a national competence until 31 December 1998. Looking ahead to next year, the Governing Council will hold fortnightly meetings and I intend to hold a press conference, normally, once a month. For the first quarter of 1999, I envisage holding a press conference immediately after the first meeting of each month. Further details of the meetings schedule are provided in the separate press release that will be issued to you this evening.","Let me, however, return to the present. The Governing Council and the General Council devoted part of their September meetings to an extended exchange of views on recent economic, monetary and financial developments. In particular, much attention was paid to the global economic and financial environment of the future euro area, which has clearly worsened. Two major factors are currently affecting capital markets. First, the \"flight into quality\". Second - and related - the tendency to switch from equities to bonds. As evidenced once again over the past few days by large swings in investor sentiment, the monetary policy environment has become more uncertain.","One focal aspect of the discussion has been a close monitoring of the financial crisis in Russia. As we all know, the Russian crisis has added to concerns regarding the state of the world economy at a time when the crisis in Asia is still ongoing and growth in Japan is negative. These concerns have been fuelled by renewed strains in international financial markets as well as sharp fluctuations and downward corrections in major stock markets. There is no doubt that these developments will have a dampening effect on the world economy. However, their precise impact is difficult to measure at the current juncture.","On the one hand, economic and model-based analysis still suggests only moderate effects on prices and output in the euro area. This is due to the fact that, first, most of the crisis regions are quite small in economic terms, i.e. when compared with world GDP or their contribution to world trade. Second, trade links between these countries and the euro area are also of limited size. Third, the euro area itself is a very large economy, which is only directly exposed to variations in global trade to a certain degree. However, on the other hand, this analysis should not mislead us. We are perfectly aware that the risks associated with current global developments go beyond those effects which we can measure directly. In this respect one may think of indirect influences resulting from changes in confidence, saving and expenditure within the euro area. We have to take these risks seriously and analyse the situation soberly, but we should also not dramatise.","Let me now turn to the latest available data. These seem to indicate that economic expansion within the euro area has remained broadly on track, despite the worsening of the external environment. Domestic demand remains strong, while the contribution to growth from net exports has declined. Both private consumption and investment provided an important stimulus to the growth rate in the first quarter of this year. More up-to-date indicators point towards continued expansion in the second quarter, albeit at a possibly more moderate pace than in the first quarter.","The outlook on consumption is supported by higher real earnings growth and declining unemployment, and is reflected in consumer confidence. The evidence for the corporate sector is perhaps more mixed. As compared to the first quarter of 1998, industrial production figures show a somewhat slower rate of increase in the period from April to May, but capacity utilisation has continued to increase and this, combined with low interest rates, should underpin investment. European Commission survey data, such as confidence indicators and the assessment of order books, bear witness to relatively high levels, both with respect to their long-term averages and recent peaks. This can also be taken as a favourable indicator for continued growth in the short term, although some indicators have not improved further since the spring. Unemployment has also been declining, but at a modest pace, and from a high level. In discussing the cyclical uncertainties, one should not forget that work on badly needed structural reforms has not so far made much progress.","Considering recent price developments, HICP inflation for the euro area as a whole remained stable at 1.4% between May and July. Both domestic and external factors still appear to be favourable, suggesting that euro area inflation may be expected to remain subdued in the future. An important external factor underlying the favourable prospects for inflation is the sharp decline in oil and commodity prices, which is partly associated with developments in Asia. Moreover, domestic sources of inflation, such as those arising from the labour market situation and capacity utilisation, are also relatively moderate at the present juncture. In my opinion, taking a euro area wide perspective, these views are also broadly compatible with current monetary and financial developments. In this connection, please take note that we should soon have new information on monetary developments on the basis of the new statistical reporting framework for money and banking.","The environment of significant volatility in international financial markets, particularly stock markets, appears to account for much of the recent decline in long-term interest rates in the euro area to historically low levels, as investors have sought to protect themselves against heightened global risk. Nonetheless, it is notable that the euro area yield curve shifted downwards at all maturities, which to some extent would tend to indicate a further decline in long-term inflation expectations for the euro area as a whole.","As we approach the start of Stage Three, we shall need to continue to monitor closely economic, monetary and financial developments within the euro area and in the world economy. This will allow us eventually to set the interest rate for the euro area as a whole. At the same time, we shall also need to monitor fiscal intentions in the euro area Member States, as they will become more transparent over the autumn. If governments merely adhere to previous deficit targets for 1999, the structural position of budgets in quite a number of countries would effectively deteriorate. This would entail that they would move farther away from, rather than approach, the requirements of the Stability and Growth Pact, which calls for the achievement of a budget close to balance or even in surplus.","In addition to the review of economic developments, a number of organisational issues were settled.","(i) The General Council adopted its Rules of Procedure, which will be published in the Official Journal of the European Communities. You will recall that I informed you that the Governing Council’s Rules of Procedure were adopted in July.","(ii) The General Council also decided that the non-euro area national central banks shall pay up 5% of their subscriptions to the capital of the European Central Bank (ECB). However, the four national central banks concerned will not be asked actually to pay in their share as the amount due is less than they can expect to receive as their share in the proceeds of the liquidation of the European Monetary Institute (EMI). Further details on the actual amounts involved are provided in the separate handout that will be issued to you this evening.","(iii) For its part, the Governing Council completed the list of committees which will assist in the work of the European System of Central Banks (ESCB). In addition to the eleven ESCB Committees agreed upon at the meeting in July, the Governing Council decided to establish an International Relations Committee and a Budget Committee. The latter was set up in order to provide transparency to the shareholders of the ECB - the national central banks - on matters relating to the budget of the ECB.","(iv) Finally, the Governing Council endorsed the draft Headquarters Agreement between the German Federal Government and the ECB, which will be signed here in Frankfurt on 18 September 1998.","A number of decisions were also taken with regard to various aspects of the preparatory work for Stage Three.","The General Council endorsed the text of an Agreement between the ECB and the non-euro area national central banks, laying down the operating procedures for an exchange rate mechanism in Stage Three (the so-called ERM II). You will recall that the European Council in Amsterdam in June last year agreed to set up an exchange rate mechanism in Stage Three to replace the present European Monetary System (EMS). For this reason, the EMI had, on behalf of the ECB, prepared a draft Central Bank Agreement to replace the current exchange rate mechanism (ERM I, if you like) by a new one in Stage Three. It is this Agreement which has now been signed by the President of the ECB and the Governors of the four non-euro area national central banks. The signature by the latter implies their agreement to the operating procedures. It does not, however, imply their participation in ERM II.","Further details on the conventions and procedures for ERM II are provided in the separate press release that is being issued to you this evening. The Agreement itself will be published in the Official Journal of the European Communities.","The Governing Council agreed on several issues relating to the monetary policy framework in Stage Three. At the centre of this framework is the report entitled \"The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures\", which contains a detailed description of the monetary policy instruments and procedures to be applied by the ESCB in Stage Three. The report expands on and updates the material included in an earlier version of the report that was published by the EMI in September 1997. I should like to limit my remarks in this regard to the announcement that a copy of this comprehensive report will be released very shortly, at which time a separate press release explaining the nature and purpose of the documentation will be issued.","The Governing Council also agreed upon a guideline for the management of the foreign exchange assets by the national central banks and for the Member States’ transactions with their foreign exchange working balances. These are now being formalised in official legal documentation.","The Governing Council endorsed the statistical framework on the basis of a number of reports that had been prepared by the EMI - many of which had been published in the past - thereby confirming the ECB’s statistical requirements for Stage Three. I should perhaps point out that the reporting framework for the money and banking statistics of the ECB will appear in the \"General Documentation\" that will be released next Wednesday.","With regard to the euro banknotes, the Governing Council confirmed (in line with previous recommendations by the EMI) that seven banknote denominations would be issued:","Euro 5,","Euro 10,","Euro 20,","Euro 50,","Euro 100,","Euro 200 and","Euro 500.","Furthermore, it decided that there would not be any national features on the euro banknotes. As you know, the euro banknotes will be put into circulation on 1 January 2002. Thus there are fewer than 800 working days to go before their launch. The Governing Council took note that the technical preparations for the euro banknotes are proceeding according to schedule. The origination phase (i.e. the process of converting the designs into proof-prints) has now been successfully concluded and a zero-production run will be conducted in the autumn before mass production starts in early 1999.","The Governing Council endorsed a list of eligible securities settlement systems following an assessment of such systems against standards that had previously been laid down for their use in the credit operations of the ESCB. The list, which indicates those securities settlement systems that will be used by the ESCB and the conditions for their use, will be set out in the \"General Documentation\", to which I have already referred. In addition, the Governing Council approved a report on the \"Assessment of EU securities settlement systems against the standards for their use in ESCB credit operations\". It is intended to release this report during the next couple of weeks.","We are at your disposal for any further questions.","Ladies and gentlemen, in line with our stated intention, the Vice-President and I are here today to report on the outcome of today’s meeting of the Governing Council of the European Central Bank. The length of my introductory statement reflects the importance of the matters dealt with today.","As usual, the Governing Council devoted part of its meeting to an exchange of views on recent economic, monetary and financial developments. This discussion took place against the background of conflicting messages. Clearly, on the one hand, the data on the economic situation in the United States and Europe, especially in the euro area, mainly indicate a continuation of real GDP growth, though possibly at a somewhat slower pace. On the other hand, however, the global macroeconomic environment has deteriorated. In particular, the number of signs suggesting that the world economy will slow down in 1999 is increasing. At the same time, uncertainty in the financial markets has been heightened by news of the near collapse of a large hedge fund, losses by individual financial institutions, and the large movements in world equity, bond and foreign exchange markets.","In the view of the Governing Council, in responding to recent economic developments and current market conditions, it is of the utmost importance that proposals inspired by policy activism that do not take due account of the complexity of the issues at stake are avoided. This would only contribute to compounding the uncertainties which underlie the prevailing global financial market volatility. Against this background, the Governing Council is of the view that proposals for a reassessment of capital controls as an acceptable policy option, or recent calls for world-wide, uniform interest rate reductions, are inappropriate as they do not address the very nature of the problems. At the same time, the Governing Council considers structural improvements at the global level to be warranted. These should focus, in particular, first on enhancing the transparency of both the public and private sectors; second, on strengthening domestic banking systems, primarily in emerging markets and economies in transition; and, third, on improving financial crisis prevention and management, in particular through the increased involvement of the private sector. A number of proposals have already been developed on these issues, which should now be finalised with a view to their early and forceful implementation.","In addition, the Governing Council stressed that such structural improvements at the global level would have to be accompanied by sound policies at home. In this respect, given the size of the euro area and its global role, it is of crucial importance that price stability - and hence a climate conducive to growth and employment - should be maintained in the euro area. Achieving this will also be of vital importance for the world economy as a whole.","With this in mind, the Governing Council reviewed the monetary, financial and macroeconomic situation in the euro area.","First, the Council discussed the monetary situation with reference to preliminary data on the basis of the new harmonised reporting system for money and banking statistics. Once internal work has been completed, these monetary statistics will be made available to the public. When looking at various definitions of broad money, our preliminary data show broadly similar and stable annual growth rates of between 3 and 5% in 1997 and the first half of 1998. According to our initial analysis, these data do not appear to signal inflationary pressures arising from money at this juncture. However, given the preliminary nature of the new data, caution should be exercised with regard to their interpretation.","Second, as regards other financial indicators, although long-term interest rates have risen recently, they are still at low levels by historical standards and the yield curve has levelled off relative to the situation some months ago. A substantial part of developments in bond markets during recent months reflects a \"flight into quality\".","Third, the Governing Council discussed the broad outlook for prices in the context of the overall macroeconomic environment. With respect to price developments, international factors continued to exert downward pressure. HICP rates in the euro area fell to 1.2% in August after having remained unchanged at 1.4% from April to July. This mainly reflected a decline in energy prices, which were almost 4% lower in August than a year earlier, and in other commodity prices. For the euro area as a whole, price pressure as indicated by industrial output prices and labour costs also remained modest. In 1999 average inflation in the euro area is expected to remain subdued, according to the projections available.","Fourth, considerable difficulties are encountered in precisely assessing and quantifying the impact of recent international developments on prices and, equally, on activity. Recent data seem to suggest that real GDP growth in the euro area, which reached 0.6% in the first quarter of 1998, has slowed down somewhat in the second quarter. We need to await the release of more complete and thereby more reliable data for the euro area as a whole before a final view can be taken. Other recently released data on industrial production, the volume of retail sales and passenger car registrations appear to point to continued growth. This view is also supported by EC survey data, although some indicators have remained constant or have fallen back slightly in recent months; nonetheless, all these indicators remain well above their long-term averages.","The Governing Council welcomed recent interest rate reductions by a number of euro area national central banks. As a result, euro area-wide three-month interest rates have now reached a level of 3.8%, which implies a decrease of around 15 basis points since the end of August. These changes underline the fact that the process of the convergence of central bank interest rates in the euro area, which is to be concluded by the end of this year, is clearly under way. The Governing Council considered further interest rate convergence towards the lower end of the current range prevailing in the euro area as being appropriate, given our current knowledge of monetary trends and the prospects for price developments and taking account of an environment characterised by risks of downward pressures. The Governing Council will continue to monitor closely monetary, financial and economic developments within the euro area with a view to determining the appropriate level of money market interest rates for the euro area.","Meanwhile, the Governing Council will continue to monitor closely fiscal intentions in the euro area Member States. The structural budgetary positions in several Member States are still far from being close to balance or in surplus as required by the Stability and Growth Pact. Therefore, these Member States are not yet sufficiently prepared to enable automatic stabilisers to function in the event of a slowdown in real GDP growth, while still respecting the 3% reference value set out in the Treaty and ensuring a decline of debt ratios at an appropriate pace. Moreover, in a number of Member States, against the background of a still favourable and partly better than expected growth performance, short-term budgetary targets appear not to represent structural improvements.","In addition to the review of economic developments, a number of decisions were taken with regard to various aspects of the preparatory work for Stage Three.","(a) Monetary policy issues","First and foremost, let me turn to the issue of the monetary policy strategy. I can inform you that at today’s meeting the Governing Council reached agreement on the main features of the stability-oriented monetary policy strategy that the ESCB will pursue in Stage Three of Monetary Union.","Before explaining our decision on the strategy, let me emphasise certain important characteristics of the environment in which the single monetary policy will operate as of next January. Of most concern to the ESCB are some uncertainties which will inevitably arise as a result of the move to Stage Three. These relate, in particular, to the way in which the transition to Stage Three of Monetary Union will affect economic behaviour and institutional and financial structures in the euro area. They also relate to statistical issues.","Against this background, the Governing Council has chosen a distinct monetary policy strategy, one that reflects the special circumstances it faces at present. This strategy will ensure continuity with the successful strategies pursued by participating national central banks in recent years, while taking into account - to the extent needed - the unique situation created by the transition to Monetary Union.","With this context in mind, the Governing Council today agreed on the main elements of the stability-oriented monetary policy strategy of the ESCB. These elements concern:","the quantitative definition of the primary objective of the single monetary policy, price stability;","a prominent role for money with a reference value for the growth of a monetary aggregate; and","a broadly-based assessment of the outlook for future price developments.","First, let me stress that, as mandated by the Treaty establishing the European Community, the maintenance of price stability will be the primary objective of the ESCB. Therefore, the ESCB’s monetary policy strategy will focus strictly on this objective.","In the interest of transparency and in order to give clear guidance with regard to expectations regarding future price developments, the Governing Council of the ECB has agreed to announce a quantitative definition of price stability. In this context, the Governing Council of the ECB has adopted the following definition: \"Price stability shall be defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%\".","Let me emphasise the fact that price stability is an objective which is to be maintained over the medium term. The current rate of HICP inflation in the euro area is in line with this objective.","Three features of this definition should be highlighted:","first, the HICP is the most appropriate price measure for the ESCB’s definition of price stability. It is the only price index that will be sufficiently harmonised across the euro area at the start of Stage Three.","second, by defining price stability using the HICP \"for the euro area\", the Governing Council of the ECB makes it clear that it will base its decisions on monetary, economic and financial developments in the euro area as a whole. I should like to emphasise the fact that the single monetary policy will adopt a euro area-wide perspective; it will not react to specific regional or national developments.","third, this definition is very much in line with most current definitions adopted by national central banks in the euro area.","Furthermore, the statement that \"price stability is to be maintained over the medium term\" reflects the need for monetary policy to have a forward-looking, medium-term orientation. It also acknowledges the existence of short-term volatility in prices which cannot be controlled by monetary policy.","In order to maintain price stability, the Governing Council of the ECB agreed to adopt a monetary policy strategy which will consist of two key elements.","Deviations of current monetary growth from the reference value would, under normal circumstances, signal risks to price stability. The ESCB will assess how best to counter these risks. However, the concept of a reference value does not imply a commitment on the part of the ESCB to mechanistically correct deviations of monetary growth from the reference value over the short term.","The relationship between actual monetary growth and the pre-announced reference value will be regularly and thoroughly analysed by the Governing Council of the ECB; the result of this analysis and its impact on monetary policy decisions will be explained to the public. The precise definition of the reference aggregate and the specific value of the quantitative reference value for monetary growth will be announced by the Governing Council of the ECB in December 1998.","However, while the monetary aggregates contain important and relevant information for monetary policy-making, monetary developments will not constitute a complete summary of all the information about the economy that needs to be known for an appropriate monetary policy to be set.","Thus the Governing Council will systematically analyse all the information available regarding the prospects for, and the risks to, price stability in the euro area as a whole.","This strategy underlines the strong commitment of the Governing Council of the ECB to its primary objective and should facilitate the achievement of this overriding goal. It will also ensure the transparency of the ESCB’s decision-making and its accountability. Based on its strategy, the Governing Council of the ECB will inform the public regularly and in detail about its assessment of the monetary, economic and financial situation in the euro area and the reasoning behind its specific policy decisions.","This strategy is designed to avoid giving the impression that monetary policy responds \"mechanistically\" to deviations from a single target or changes to a specific variable. The monetary policy strategy that has been selected by the Governing Council of the ECB signals that monetary policy in the euro area will be determined in a manner which will maintain price stability, responding to new developments in or disturbances to the economy in an appropriate manner which is consistent with this overriding objective.","The strategy therefore offers a clear and transparent framework within which the Governing Council of the ECB will be able to assess and present monetary policy decisions.","Please note that the main features of the strategy are also summarised in a press release to be distributed to you.","Still in the context of preparing for the single monetary policy, you may recall that in July I informed you about the range of institutions subject to reserve requirements and the liabilities included in the reserve base. I also gave you indications regarding the lump-sum allowance to be deducted from an institution’s reserve requirement and the reserve ratio, for which the Governing Council envisaged a range of 1.5-2.5%. Today, the Governing Council discussed the last remaining open issues regarding the ESCB’s minimum reserve system and confirmed that, first, the lump-sum allowance will be set at a level of  100,000 and, second, the reserve ratio will be set in the middle of the indicated range, i.e. at 2%. Finally, it was agreed that a credit institution will be allowed to deduct from the reserve base 10% of its debt securities with a maturity of up to two years and of its money market paper if it cannot provide evidence of the corresponding interbank liabilities.","An ECB Regulation laying down the features of the ESCB’s minimum reserve system will be published shortly. In the meantime, further details are provided in a separate press release which is to be issued to you this evening.","(b) Foreign exchange policy issues","The Governing Council agreed on a set of legal documentation setting out the respective roles of the ECB and the euro area national central banks (NCBs) in the management of the ECB’s foreign reserve assets. The legal documentation specifies, inter alia, the role of the NCBs in carrying out operations involving the foreign reserve assets of the ECB and incorporates master netting agreements to be signed by the ECB and market counterparties.","(c) Payment systems issues","As you are aware, TARGET will not be the only system available for cross-border payments. For non-monetary policy transactions it will, for instance, also be possible to process payments via the EBA Euro Clearing System (currently the ECU Clearing and Settlement System). While TARGET is a real-time gross settlement system, the EBA alternative is a clearing system, i.e. the payments have to be settled at the end of the day. In this regard, the Governing Council has agreed that the ECB will be involved. The EBA Euro Clearing System will, therefore, open a central settlement account at the ECB for its settlements within the euro area and may also open settlement accounts with those NCBs which agree to do so. The ECB will also hold the account on which the EBA Euro Clearing System’s liquidity pool will be maintained. Agreements between the ECB and the EBA covering the operation of these accounts are currently being finalised.","(d) The euro banknotes","With a view to increasing efficiency in combating counterfeiting, the Governing Council confirmed the agreement reached by the EMI Council that a Currency Analysis Centre and a Counterfeit Currency Database will be set up, which will store technical data relating to counterfeit euro banknotes. I should point out that the intention is to continue to deal with counterfeits of other currencies (e.g. the national currencies of participating or non-participating Member States and the US dollar) at the national level. All EU Member States will have the option of full participation in the database system. Although a decision on the location of the Currency Analysis Centre will not be taken until the early part of 1999, the Governing Council today approved the principles governing the way in which counterfeit euro banknotes will be handled. Further details are provided in a separate press release which is to be issued to you this evening.","The Governing Council has also agreed on the approach to be used for estimating the number of euro banknotes to be printed before the launch date of 1 January 2002. The quantity of euro banknotes to be printed will be determined by the number required to replace the stocks of national banknotes in circulation (launch stocks) in the participating EU Member States together with the volume of the logistical stocks needed to ensure that the banknote changeover operates smoothly. It is currently estimated that up to approximately 13 billion euro banknotes will need to be printed before the issue date for the eleven participating Member States. This estimate will be updated regularly as we approach 2002.","A separate press release on banknotes is to be issued to you this evening.","Finally, the Governing Council also addressed the following matters.","First, with regard to statistics, it was agreed to publish an Addendum to the document entitled the \"Money and Banking Statistics Compilation Guide - Guidance provided to NCBs for the compilation of money and banking statistics for submission to the ECB\". The Addendum covers the treatment of both money market paper and bill-based lending within the harmonised framework for money and banking statistics. The original Compilation Guide was published by the EMI in April 1998.","Second, the Governing Council took stock of the current state of affairs with regard to the testing of critical ESCB systems and procedures in the run-up to the start of Stage Three. The ESCB has just commenced a general \"dress rehearsal\" i.e. a final testing phase for all ESCB systems and procedures.","Finally, looking a little further ahead to beyond the start of Stage Three, the Governing Council also agreed that a series of tests should be conducted during the course of 1999 in order to ensure that all ESCB-wide systems and applications are Year 2000 compliant.","We are now at your disposal should you have any questions.","Ladies and gentlemen, as in previous months, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the European Central Bank. The number of items considered by the Governing Council required a full-day meeting. Most of the items on the agenda were of a rather technical nature or were related to the legal implementation of decisions already taken at previous Governing Council meetings. Part of the meeting was attended by Mr. Edlinger, President of the EU Council, and by Commissioners de Silguy and Monti. Let me first turn to the Governing Council's in-depth discussion on recent economic, monetary and financial developments.","Starting with the global macroeconomic environment, it was felt that the spiral of bad news has not continued over the most recent weeks. Also, when looking at market developments, we have observed a strengthening of the US dollar vis-à-vis euro area currencies since its trough in mid-October. We have seen a recovery in global stock markets and we have also witnessed some upward correction of long-term bond yields after they had fallen sharply as a result of a \"flight to quality\". However, markets displayed considerable volatility during the month of October, reflecting the uncertainty prevailing in the world economy Whether or not we can now expect a process towards more normal conditions remains to be seen. Given the underlying causes of the adverse conditions in Asia, Russia and other parts of the world, a quick resolution is in any case not very likely. Moreover, it is by now quite clear that the world economy will suffer from these developments in 1999 and that the euro area will also be affected to some extent.","However, the crucial and widely debated issue is the degree to which such effects on the euro area will materialise and how long they may last. As matters stand, there appears to be consensus that euro area economic growth will slow down to some extent in 1999, driven largely by a weakening in net exports. In its latest forecast, published on 21 October 1998, the Commission has revised downwards aggregate euro area real GDP growth to 2.6% in 1999, compared with the increase of 3.2% projected earlier this year. According to the same source, the slowdown is expected to be only temporary and real GDP growth is anticipated to strengthen again in 2000, with the contribution of net trade improving. At the same time, the outlook for inflation in the near term remains generally favourable, assuming continued wage moderation and subdued developments in import prices.","In today's discussion, the Governing Council agreed to examine further the broad outlook for the euro area at its two meetings in December. In this context, we shall thoroughly discuss the downside risks for output growth resulting from the evolution of world trade and from international financial tensions and the possibility of still more subdued price developments. However, one should also mention the fact that a relaxation of fiscal policies and higher wage increases could lead to a reversal of current developments in consumer prices and undermine confidence. Any uncertainties arising in these two fields would of course considerably complicate our assessment, given the high degree of uncertainty already associated with the developments in the global economy.","With respect to today's review of the monetary, financial and macroeconomic situation in the euro area, the following aspects were discussed First, with reference to monetary growth, let me recall that when looking at various definitions of broad money, our preliminary data show broadly similar and stable annual growth rates of between 3 and 5% in 1997 and the first half of 1998. According to our initial analysis these monetary trends do not appear to signal inflationary pressures at this juncture. However, a further assessment will be made in December on the basis of more up-to-date information.","Second, with respect to price developments, euro area HICP inflation fell from 1.2% in August to 1.0% in September 1998. The generally low level of HICP increases mainly reflects a decline in energy prices, which were almost 4% lower in September than a year earlier, and in other commodity prices; in addition, price pressure as indicated by industrial output prices and unit labour costs has remained modest. With respect to the decline in HICP inflation in September, this is closely related to a relatively strong fall in food prices (from 1.8% in August to 1.4% in September 1998), which account for almost one-quarter of the total HICP. Such monthly changes are certainly very difficult to interpret. However, I may point out that food prices display a larger degree of volatility owing to their seasonal pattern.","Third, taking into account distorting factors such as calendar effects, underlying developments in euro area-wide real GDP have remained fairly stable. Economic expansion was broadly unchanged in the first half of 1998 from the solid growth seen in the second half of 1997. Also, at this juncture, data partly available for the summer months point to the possibility that recent rates of output growth may be broadly sustained beyond the first half of this year. While the trends appear in some cases weaker, particularly when also looking at some national data, the latest euro area-wide survey data on confidence, order books and capacity utilisation generally remain well above their long-run averages. However, further developments in these data will have to be monitored closely. Concerning the assessment of the monetary policy stance in the euro area, the Governing Council - after having carefully reviewed all factors and developments - confirmed the view taken at its previous meeting. It considered further interest rate convergence towards the lower end of the current range prevailing in the euro area as being appropriate. Measured by key central bank rates, the lowest rates in the euro area currently stand at 3.3%. Market interest rates have also reached very low levels. In terms of three-month interest rates, the euro area average rate has fallen to 3.75%, following the reduction of interest rates by a number of euro area central banks. With the announcement today of further interest rate reductions by the Banco de España and the Banco de Portugal, both effective tomorrow, the euro area average will continue its downward trend. Nominal and real long-term interest rates for the euro area are at historically low levels. It confirms the high degree of confidence that the euro has gained in the judgement of the general public and of global investors. This confidence is a major asset in the consolidation of a financial environment conducive to growth.","As has been proven in many instances in the past, monetary policy cannot solve structural problems. Indeed, monetary policies in the euro area countries have increasingly converged over the past few years and resulted in low levels of interest rates. Several countries have followed virtually a \"common monetary policy stance\" over a longer period, but performances - for example in labour markets - within the euro area differ considerably from country to country. The degree of success in this area seems to be closely related to structural reforms implemented in earlier years.","I am confident that we can cope both with current problems and with future challenges. This requires a forward-looking, medium-term-oriented monetary policy, which keeps inflationary expectations low. This is the decisive contribution of monetary policy to the fostering of growth and employment. Dealing with structural problems is the task of policies other than monetary policy.","Let me now give the floor to the Vice-President to report on various aspects of the preparatory work for Stage Three.","(a) Preparations for the \"changeover weekend\"","With less than 60 days to go before the start of Stage Three, we are obviously attaching particular importance to the provision of a framework allowing for a smooth changeover to the euro. We began our preparations a long time ago and I am confident that the ESCB will be in a position to deliver its entire complex infrastructure to the markets by the morning of 4 January 1999. I expect the banking and financial community in the euro area to be fully aware both of the logistical challenge that the changeover weekend represents and of the need for careful preparation. Given the concentration of migration operations to the euro to be conducted by a multitude of financial agents (i.e. payment systems, securities settlement systems, custodians, individual banks, exchanges and financial information providers) in the period from 31 December 1998 to 4 January 1999, the ESCB is preparing to work together with other public authorities to orchestrate the necessary policy responses to any unexpected events. To this end, the Governing Council has set up an ad hoc \"Changeover Weekend Committee\" which will organise the monitoring of developments vis-à-vis the final migration to the euro within the ECB and the national central banks and in the banking and financial industry, both prior to and during the changeover weekend Additional details on the preparation of the changeover weekend are provided in a separate press release which is to be issued to you this evening.","(b) Payment systems issues","With regard to euro payment and settlement systems, I should like to draw your attention to recent developments which suggest that many market participants consider the euro as a special currency to which the traditional rules applied elsewhere in the developed world would not necessarily be applicable. Initiatives were taken, or allowed to develop, that have no precedent in the arrangements concerning other currencies. This relates in particular to the granting of payment finality and intraday credit in a currency other than a country's own. Therefore, the Governing Council considered it appropriate to issue a policy statement clearly spelling out the fact that the rules which apply to all of the other currencies in the world will also apply to the euro, and that the ECB bears the same responsibilities as all the other central banks in the world This policy statement on euro payment and settlement systems located outside the euro area is to be issued to you this evening The Governing Council also agreed on the main features of the legal framework within which the TARGET system will operate. These main features are set out in greater detail in the \"Third progress report on the TARGET project\", which the Governing Council endorsed today. In common with previous progress reports, the current one will be published in the near future and will provide further technical details of interest to market participants.","(c) Exchange of national banknotes","In the absence of euro banknotes at the start of Stage Three, the Governing Council today agreed on arrangements according to which the participating national central banks will exchange legal tender banknotes of other participating Member States for national banknotes and coins at the official conversion rate as from 1 January 1999. To ensure substitutability between the national currency units, the Governing Council decided that each participating national central bank will arrange for such an exchange at one location at least. The national central banks may, however, limit the number and/or the total volume of banknotes they are prepared to accept for any given transaction or on any one day Further details on that matter are provided in a separate press release which is to be issued to you this evening.","(d) Allocation of monetary income","As regards the income arising from the issuance of national banknotes from the participating Member States the Governing Council today decided that such income will not be redistributed prior to the introduction of the euro banknotes. The Governing Council also confirmed with respect to the allocation of monetary income of the national central banks of the participating Member States for the financial years 1999 to 2001, that the monetary income for the said period will be calculated by employing the so-called indirect method, by multiplying a defined liability base by a specified reference rate of interest. The sum of the monetary income of each national central bank will be allocated to the participating national central banks in proportion to their paid-up share in the ECB's capital. Owing to the temporary character of the current decision, the question of monetary income allocation will need to be revisited before the introduction of euro banknotes in 2002.","(e) Transfer of foreign reserve assets to the ECB","Today the Governing Council also adopted an ECB Guideline establishing the legal format as well as the modalities of the initial transfer of foreign reserves from the national central banks to the ECB. In this connection and as a measure for covering possible foreign exchange risks for the ECB, the Governing Council endorsed, in line with the Statute of the ESCB, an ECB Recommendation for a Council Regulation which would authorise the ECB to increase its capital from the current level of E5 billion to up to twice that amount.","(f) Monetary and foreign exchange policy","Further decisions have also been taken with regard to preparing the monetary and foreign exchange policy of the euro area. On previous occasions I have mentioned to you that legal acts are under preparation which specify general principles to be followed by the national central banks when carrying out operations in domestic assets and liabilities and in foreign exchange reserve assets remaining with the national central banks. Such instruments, which are based on provisions of the Statute of the ESCB, aim from a legal point of view at ensuring the singleness of the ECB's monetary policy and the consistency of such transactions with the Community's exchange rate and monetary policies. Against this background, the Governing Council today adopted an ECB Guideline which establishes certain reporting obligations for the national central banks' domestic asset and liability management operations and subjects such transactions to the prior approval of the ECB whenever they exceed a certain amount. A similar ECB Guideline was adopted which subjects all operations in foreign reserve assets - including gold - which exceed a certain amount to the approval of the ECB. In addition, the Governing Council adopted an ECB Guideline according to which any participating Member States' transactions with their foreign exchange working balances which exceed a certain amount have to be notified to the ECB in advance. A similar arrangement is envisaged between the ECB and the Commission of the European Communities for all foreign exchange transactions carried out in the context of implementing the Commission's budget.","In the context of the statutory function of the ESCB to contribute to the smooth conduct of policies of competent authorities in the field of banking supervision and financial stability, the Governing Council discussed the main driving forces that are likely to affect the EU banking systems in the medium and long term, including the establishment of EMU. The Council members hold the view that the establishment of EMU is expected to reinforce the structural tendencies that are already under way in the EU banking systems. These tendencies include the reduction of excess capacity, pressure on profitability, enhanced competition, increased internationalisation and geographical diversification. One important aspect is the fact that EU banks seem to have significantly increased their awareness of the strategic implications of the introduction of the euro over the past few months. They are devising specific responses accordingly, which include: (i) improvements in services and procedures; (ii) changes in the range of products supplied to customers; and (iii) mergers, strategic alliances and co-operation agreements. We intend to make the outcome of this examination public in due course Finally, the Governing Council adopted an ECB Decision concerning public access to the documentation and archives of the ECB. This Decision will be published in the Official Journal of the European Communities. We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the Governing Council and the General Council of the European Central Bank. Similarly to last month, the Governing Council had a very heavy agenda with many of the items being of a rather technical nature or related to the legal implementation of decisions already taken at previous meetings.","Let me first turn to the Governing Council's in-depth discussion on recent economic, monetary and financial developments.","Today the Governing Council focused, inter alia, on various projections available for the world economy and the euro area. This material pointed unequivocally to some deceleration of real GDP growth in the euro area in 1999, compared with the widely expected growth rate of just below 3% in 1998.","In addition, the Governing Council took note of the apparently calmer conditions in world financial markets in November this year. A key feature has been the diminished volatility in financial markets.","However, the Governing Council pointed out that caution is warranted when interpreting the most recent developments and the projections available. Indeed, downward risks continue to exist.","In the view of the Governing Council, apart from global developments, the most significant risk for all forecasts is that confidence within the euro area and thereby domestic demand could be negatively affected. Confidence in the corporate sector has already declined. In this respect, the Governing Council emphasised the utmost importance of maintaining a sound and sustainable policy framework within the euro area, particularly in the interest of supporting confidence. This framework is characterised by the maintenance of a stability-oriented monetary policy, a conduct of fiscal policies which is consistent with the Stability and Growth Pact, and ongoing structural reforms in the labour and product markets, accompanied by continued wage moderation. Maintaining this policy framework will help to foster competitiveness and profitability in the corporate sector, thereby promoting investment. Equally, it will help to sustain and foster the employment growth that has been seen recently, thereby supporting private consumption.","Against this background, the Governing Council discussed in depth issues related to the conduct of monetary policy for the euro area. Let me elaborate on that discussion, which further prepared the ground for the setting of interest rates for the euro area. In the context of the stability-oriented monetary policy strategy, the main elements of which were announced in October this year, the Governing Council agreed on the quantitative reference value for monetary growth and the monetary aggregate to which it applies. Moreover, the Governing Council carefully analysed the data on monetary developments and made a thorough examination of the broad outlook for price stability.","The first reference value for monetary growth decided by the Governing Council, which plays a prominent role in the Governing Council's monetary policy assessment, will apply to the broad monetary aggregate M3 and has been set at an annual rate of 4 1/2%; it will be reviewed in December 1999. This rate is consistent with the maintenance of price stability according to the ESCB's published definition, while allowing for sustainable output growth. It has been derived by assuming that the trend growth rate of real GDP in the euro area is in the range of 2% to 2 1/2% per annum and the velocity of circulation of M3 declines at a trend rate of between 1/2% and 1% each year. Further details related to the derivation of the reference rate and the definition of the broad aggregate M3 are described in a separate press statement to be released today. With regard to the reference value, let me stress two points very clearly.","First, the reference value for M3 growth has been derived in an explicit medium-term context, in line with the ESCB's monetary policy strategy. Analysis of monetary developments relative to the reference value will provide a firm anchor for the conduct of the stability-oriented single monetary policy.","Second, the ESCB's monetary policy strategy does not entail \"mechanistic\" policy reactions to deviations of monetary growth from the announced reference value. In the first instance, deviations of monetary growth will be analysed thoroughly, in parallel with the broadly based assessment of the outlook for price developments.","Preliminary estimates for part of the euro area indicate that the average of the 12-month growth rates for the last three months (including October) was around 4.5%. Taking a medium-term perspective, the Governing Council took note of the fact that over the last two years the annual rate of M3 growth has constantly fluctuated in a range of 3.5% to 5.5%. It was concluded that this monetary trend appears to be broadly compatible with continued price stability in the euro area. In line with the ESCB's monetary policy strategy, the Governing Council will closely monitor developments in M3 in relation to the reference value.","As regards other financial indicators, average long-term interest rates in the euro area declined slightly in November to 4.15%. The decline in long-term interest rates, which has been substantial since June this year, is consistent with the view that markets currently have low inflation expectations.","The discussion on the appropriate interest rates for the start of Stage Three was further deepened during the deliberations of the members of the Governing Council on the broad outlook for price stability in the euro area. Prospects for price developments are generally seen as favourable as the rate of increase in the HICP, which stood at 1.0% in October, is expected to remain below 2% in the foreseeable future. However, this is conditional on import prices remaining subdued and wage developments continuing to be moderate.","In the same context, the Governing Council emphasised once again that budgetary positions are still far from being close to balance or in surplus, while debt ratios are still at a very high level. All the members of the Governing Council agreed that any tendency to relax the fiscal stance or to alter the strategy enshrined in the Stability and Growth Pact would risk endangering the credibility of the euro and the objective of price stability.","On balance, the outlook for price stability was judged favourably by the Governing Council. In an environment of substantial uncertainty, monetary policy will be guided by a continuous convergence of central bank interest rates towards the level considered to be appropriate for the monetary, financial and economic situation prevailing at the start of Stage Three.","Let me now give the floor to the Vice-President to report on various aspects of the preparatory work for Stage Three of Economic and Monetary Union.","(1) Revision of the key for the capital of the European Central Bank (ECB)","Revised GDP data, which are used to calculate the key for the capital of the European Central Bank, have been received from the Commission of the European Communities. When the revisions are applied to the calculation of the capital key, variations of more than 0.01% occur. Article 2 of the original Decision of the Governing Council of the ECB of 9 June 1998 (ECB/1998/1) states that should revisions received before December 1998 result in variations of this magnitude, the key for the capital of the ECB may be revised. The General Council and the Governing Council have therefore considered and agreed to an adjustment of the key and the Governing Council has adopted the related ECB Decision. Details of the adjusted shares of the national central banks (NCBs) are presented in a separate press release which is to be issued this evening. Today, also in this connection, the General Council adopted an ECB Decision on the contribution of the non-euro area national central banks to the capital of the ECB, for which the adjustment of the key has knock-on implications. The Decision states that the non-euro area NCBs will pay up 5% of their subscriptions to the capital of the ECB. However, the four NCBs concerned will not actually be asked to pay their share since the amounts due are less than they can expect to receive as their share in the proceeds of the liquidation of the European Monetary Institute. These details were already agreed by the General Council at its meeting on 1 September this year and are now contained in a legally binding text.","(2) National legal framework for the monetary policy instruments and procedures in Stage Three of Economic and Monetary Union","As you are already aware, from January 1999, the single monetary policy will be defined and implemented by the decision-making bodies of the ECB, the Governing Council and the Executive Board. The operations of the monetary policy of the ESCB will be carried out in a decentralised manner by the participating NCBs. Therefore, the NCBs have prepared contractual and/or regulatory legal documentation (the national legal documentation) in order to implement the monetary policy framework of the ESCB as adopted by the Governing Council on 11 September 1998 and published in the report entitled \"The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures\". The national legal documentation of each NCB has been assessed by legal experts from the NCBs and the ECB in order to ensure that it properly implements and complies with the monetary policy framework of the ESCB, which aims at establishing a level playing-field across the euro area. All eligible institutions wishing to access monetary policy operations and standing facilities in Stage Three should therefore contact their local NCB in order to prepare for the execution of that national legal documentation in good time before the beginning of Stage Three.","(3) Regulation of the European Central Bank on the application of minimum reserves","Today the Governing Council adopted the Regulation of the European Central Bank on the application of minimum reserves. The final specifications of the minimum reserve system to be used by the ESCB in Stage Three was the subject of a press release following the Governing Council meeting on 13 October this year. At that time it was announced that an ECB Regulation on minimum reserves would be published shortly thereafter. This commitment has now been fulfilled and the features of the ESCB's minimum reserve system are contained in a legally binding text.","(4) Regulation of the European Central Bank concerning the consolidated balance sheet of the Monetary Financial Institutions sector","Today the Governing Council also adopted an ECB Regulation concerning the consolidated balance sheet of the Monetary Financial Institutions (MFI) sector. The purpose of this Regulation is to enable the ECB and the NCBs to collect the statistical material required for the establishment of the consolidated balance sheet of the MFI sector. The aim of this balance sheet is to provide the ECB with a comprehensive, statistical picture of monetary developments covering the aggregated financial assets and liabilities of MFIs located in the euro area.","(5) Payments systems issues","(i) Legal documentation for the correspondent central banking model (CCBM)","The correspondent central banking model (CCBM) is a system which will enable all collateral that is eligible for ESCB monetary policy operations to be used on a cross-border basis. It is a system that relies on bilateral relations between the NCBs involved and implies, inter alia, a regime of rights and liabilities between the NCBs. There are two pieces of legal documentation involved in this issue. First, there is the so called \"CCBM Main Agreement\", which concerns the participating Member States and the ECBs, and second, there is what we call the \"Out CCBM Agreement\", which deals with the regulations for operations concerning non-participating Member States. Today, the central bank Governors of all 15 Member States and the President of the ECB signed the \"Out CCBM Agreement\" and the members of the Eurosystem signed the \"CCBM Main Agreement\", \"Eurosystem\" being the term which we now intend to use to refer to the 11 euro area NCBs and the ECB. Further details of the CCBM and information concerning the forthcoming publication of a brochure on the subject are contained in a separate press release which will be issued to you this evening.","(ii) TARGET Agreement","Further to the Governing Council's agreement on the main features of the legal framework for TARGET in November this year, I am pleased to be able to inform you that today the TARGET Agreement has been signed by all 15 central bank Governors and the President of the ECB, thus allowing the non-euro area NCBs to be connected to TARGET. By entering into the TARGET Agreement today, the central banks of Denmark, Greece, Sweden and the United Kingdom have consequently agreed to adhere to the rules and procedures referred to in the TARGET Guideline, which regulates the relationship between the ECB and all euro area central banks. Finally, it gives me pleasure to announce that the central bank Governors of these four countries have committed their NCBs to adhere to the principles laid down in the policy statement on euro payment and settlement systems located outside the euro area, which was released to you on 3 November 1998.","(6) Issues relating to accounting and financial reporting","Finally, today the Governing Council, having considered the observations of the General Council, adopted an ECB Guideline on the legal framework for accounting and reporting in the ESCB. This Guideline will not be published but will be available on request from the ECB. A number of other decisions were also taken regarding the consolidated weekly financial statement of the ESCB. The formats for the external reporting of the financial accounts of the ESCB were agreed. It was decided that Friday will be the reporting date of the ESCB and that publication of the weekly consolidated balance sheet will take place on the following Tuesday. Further details will be supplied when the first weekly consolidated balance sheet is published.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the European Central Bank at which we took the opportunity to finalise a number of issues of a rather technical or legal nature ahead of the forthcoming Changeover Weekend. Let me first turn to the Governing Council's discussion on recent economic, monetary and financial developments and the decisions that the Governing Council has taken today in the field of monetary policy. On 1 January 1999 the ESCB will assume responsibility for defining and implementing the single monetary policy of the euro area. The Governing Council of the ECB deemed it appropriate to announce in advance the interest rates that will apply to the monetary policy instruments of the ESCB as from the start of Stage Three. This should eliminate any remaining uncertainties about the monetary policy stance of the ESCB and contribute to a smooth changeover to Stage Three of Economic and Monetary Union. As you have already been informed, the following decisions were taken:","First, the Governing Council decided to conduct the first main refinancing operation of the ESCB as a fixed rate tender and to set the level of the interest rate for this operation at 3%, in line with the key central bank rates prevailing at the end of Stage Two. This operation will be initiated on 4 January 1999, the allotment decision will be taken on 5 January 1999, and the settlement will take place on 7 January 1999. The first longer-term refinancing operation will be announced on 12 January. The Governing Council today already decided that it will be conducted through the single variable rate auction procedure.","Second, with respect to the interest rates on the ESCB's standing facilities, which are designed to form a corridor for movements in short-term money market rates, the Governing Council decided that the interest rate for the marginal lending facility will be set at a level of 4.50% and the interest rate for the deposit facility at a level of 2%. These are the rates of the ESCB's standing facilities at the start of Stage Three, i.e. 1 January 1999.","Third, however, as a transitory measure, between 4 January and 21 January, the interest rate for the marginal lending facility will be set at a level of 3.25% and the interest rate for the deposit facility at a level of 2.75%. This exceptional narrow corridor, of 50 basis points, between the marginal lending facility and the deposit facility aims at smoothing the adaptation of market participants to the integrated euro money market during the initial days of Monetary Union. The maintenance of such a narrow corridor is not desirable beyond the short term, since it would hamper the development of an efficient euro area money market. Therefore, the Governing Council intends to terminate this measure following its meeting on 21 January 1999. In summary, let me provide the following explanations for these decisions. I will start with issues related to the narrow corridor; thereafter, I will comment on the level of the interest rates.","With respect to the interest rates on the ESCB's standing facilities, which are designed to form a corridor for movements in short-term money market rates, the Governing Council had to consider two aspects. First, it needed to signal clearly its monetary policy intentions. These were expressed by setting the rate for the marginal lending facility at 4.50% and the rate for the deposit facility at 2% for the start of Stage Three. Hence, the corridor for movements in short-term interest rates is asymmetric towards the upper boundary. Determining these rates was also necessary in order to provide successors to the official national central bank rates previously used as reference rates in certain legislation and contracts in some Member States. Second, however, the Governing Council also had to consider the possibility that market participants may need some time to get used to the new environment for monetary policy. In principle, cross-country deviations of short-term interest rates will not exist in Stage Three, as intra euro area arbitrage should be expected to prevent this. However, the many novelties related to the changeover make it difficult to foresee whether the euro area money market will indeed work in a fully integrated way immediately from the very first day of Stage Three. For this reason, the Governing Council has decided to use a relatively narrow corridor of interest rates on the standing facilities of the ESCB in the first three weeks of Stage Three as an automatic device to reduce the maximum range of fluctuations in the overnight interest rate. Accordingly, we have temporarily designed an exceptional corridor of only 50 basis points, with the interest rate for the marginal lending facility at 3.25% and the interest rate for the deposit facility at 2.75% which we intend to terminate on 21 January 1999. Concerning the decision to set the level of the interest rate for the first main refinancing operation of the ESCB at 3%, it may be recalled that on 3 December 1998, in a co-ordinated decision, all national central banks participating in the single monetary policy lowered their key interest rates to 3% (with the exception of the Banca d'Italia, which reduced the discount rate to 3.5%). As explained by the ECB at that time, this joint reduction had to be seen as a de facto decision on the level of interest rates with which the ESCB will start Stage Three and which it intended to maintain for the foreseeable future. It was based on the common assessment that these interest rate reductions are in line with maintaining price stability in the euro area over the medium term. In this connection, it is to be pointed out that a rate of 3% is very low by historical standards. This should be seen as clear indication that the ESCB does not want to give any signal for a further easing in the foreseeable future. At today's meeting, taking account of the latest monetary, financial and economic data, the Governing Council confirmed these views. At this juncture, there are no signs to suggest either that current rates of increase in the HICP of around 1% would decelerate significantly, or, conversely, accelerate to levels which are inconsistent with the definition of price stability provided by the ESCB in October 1998. Let me provide you with a more detailed record of our assessment. The information coming from the data on monetary aggregates signals a relatively smooth path for M3 growth in 1998, compatible with continued price stability. In particular, the latest three-month moving average annual growth rate of M3 stood at around 4.5%. This was exactly in line with the reference value set by the Governing Council at its last meeting. With respect to the other pillar of the ESCB's monetary policy strategy, the broadly based assessment of the outlook for price developments and risks to price stability, various indicators confirm the assessment of developments in monetary data. The further reduction of long-term interest rates by almost 20 basis points since the end of November to a level of 3.9% on 21 December, as well as the downward shift in the yield curve, can be regarded as a sign that markets expect the environment of price stability to continue. From the point of view of the Governing Council, it is an encouraging signal that financial market participants are apparently prepared to attribute a credibility bonus to our stability-oriented monetary policy shortly before its official start. At the current juncture, the outlook for the euro area economy is still very much influenced by the uncertainties surrounding the evolution of the world economy in 1999. These uncertainties have affected negatively indicators of industrial confidence in the euro area and have fuelled expectations of a slowdown in economic activity in the short term. Very recently, a first estimate of real GDP growth in the euro area in the third quarter of 1998 has been released by EUROSTAT, suggesting a growth rate of 2.4% against the third quarter of 1997. This would be around one-half of a percentage point lower than the average growth rate of 3% in the first half of 1998, compared with the first half of 1997. Other indicators of real activity were mixed up to November. While order books and capacity utilisation point to a less optimistic assessment of growth prospects, consumer confidence remained high and retail sales continued to increase at a broadly stable pace up to September, i.e. the latest month for which data are available. Also, the decline in unemployment, after having paused in the summer months, resumed, with the rate of unemployment decreasing from 10.9% in September to 10.8% in October. The factors underpinning the currently low increases in the HICP continued to include falling energy prices, downward movements in producer prices, subdued wage growth and slight decreases in unit labour costs. On balance, the overall environment described above does not point to significant upward or downward pressure on prices in the short term, as also reflected in all available forecasts for 1999. Nevertheless, factors contributing to risks to price stability on both sides need to be taken into account. On the one hand, downward risks relate to the global environment and potential repercussions on the euro area, for example via import prices and further pressure on producer prices. These developments will be monitored closely. On the other hand, unexpected upward pressure on wages and a relaxation of the fiscal stance would clearly alter the general environment. Therefore, we will also carefully monitor the outcome of ongoing wage rounds, the plans for fiscal policy in 1999 and over the medium term, as well as their implementation towards compliance with the Stability and Growth Pact. In conclusion, the actual situation, characterised by monetary growth compatible with continued price stability and the absence of immediate upward or downward pressure on prices, justifies maintaining the current stance of monetary policy, with an ECB interest rate of 3% for the main refinancing facility. As we indicated in the ECB press release of 3 December 1998, the intention was also to maintain this rate \"for the foreseeable future\". Indeed, monetary policy in Stage Three starts with interest rates which are very low by historical standards. Let me now give the floor to the Vice-President to report on various aspects of the final preparatory work for Stage Three of Economic and Monetary Union.","Preparations for the changeover to the single currency","On 11 December 1998 the ECB issued a press release on the practical issues relating to the forthcoming Changeover Weekend as a follow-up to the information provided in the press release issued on 3 November 1998. At its meeting today, the Governing Council took stock of the state of the preparations of the ECB and of the national central banks and took note of the very detailed planning which has been co-ordinated by the special Changeover Weekend Committee which the Governing Council set up in November. The Governing Council also took note of the outcome of the recent \"dress rehearsal\", which had simulated the full operational activity of the ESCB using normal systems and procedures and, if they were to fail, contingency procedures. In line with the announcement made in the Joint Communiqué issued on 2 May 1998 - by the Ministers of the Member States adopting the euro as their single currency, the Governors of the central banks of those Member States, the European Commission and the European Monetary Institute - the Governing Council reconfirmed today that appropriate market techniques would be used to ensure that on 31 December 1998 the market exchange rates, recorded during the teleconference held between 11 a.m. and 11.30 a.m. (C.E.T.) and used for calculating the daily exchange rates of the official ECU will be equal to the ERM bilateral central rates. These bilateral central rates were published in the Joint Communiqué in the form of a parity grid. The ECB has also been involved in the testing of the procedures to be applied to the fixing of the irrevocable euro conversion rates so as to minimise the likelihood that technical problems might arise on 31 December 1998. As part of the process of fixing these rates, the Governing Council - in consultation with the General Council of the ECB - will adopt by special teleconference its formal Opinion on a proposal from the European Commission, which the ECB President will deliver personally to the specially convened session of the Council of the European Union in Brussels in the early afternoon of 31 December 1998. The ECB and the NCBs will contribute to the efforts to publicise the information on the irrevocable euro conversion rates by publishing them on their respective web sites. Contemporaneously, the ECB will send a S.W.I.F.T. broadcast message to the whole banking community in the world to confirm the rates of the eleven currencies against the euro. The Governing Council agreed that, as of 1 January 1999, the ECB will fully change over to the euro. As a consequence, the staff of the ECB will be remunerated in euro with effect from that date.","EONIA","The Governing Council took stock of the final preparations being made for the calculation of the Euro OverNight Indexed Average interest rate - to be more simply known as EONIA. This will be calculated on the basis of data supplied by a panel of banks in the European Union. The EONIA will be published each day, starting on Monday, 4 January 1999.","The authority of the ECB concerning the issuance of national banknotes","With the start of Stage Three, banknotes and coins denominated in the national currencies of the eleven participating Member States will become sub-divisions of the euro from that date onwards. Although euro banknotes and coins will not be put into circulation until 1 January 2002, from 1 January 1999 the right to authorise the issue of national banknotes - and the right to approve the volume of national coins to be issued - will belong to the Governing Council of the ECB. With regard to the issue of national banknotes during the three years until euro banknotes are put into circulation, the Governing Council agreed today to develop a set of common procedures by the spring of 1999 to be followed by the participating national central banks when requesting authorisation to issue national banknotes. Similarly, on an annual basis, the national central banks will submit estimates to the ECB of the volume of national coins to be issued.","Logistics of the 2002 cash changeover","In connection with the preparations for the 2002 cash changeover, the Governing Council addressed the issue of \"front-loading\", i.e. the distribution of euro banknotes and coins prior to 1 January 2002 to certain target groups. A final decision will be taken in the first week of 1999.","1998 Annual Report and the ECB's first Monthly Bulletin","The Governing Council agreed that the 1998 Annual Report covering the first six months of the life of the ECB and the transition from the EMI will be released to the media on Thursday, 15 April 1999. It was also agreed to release the ECB's first Monthly Bulletin on Tuesday, 19 January 1999.","Swap agreements with the Federal Reserve System and Norges Bank","The Governing Council took the opportunity of the forthcoming introduction of the euro on 1 January 1999 to review and adjust existing swap agreements between euro area central banks, on the one hand, and the Federal Reserve System and Norges Bank, on the other hand. First, the Governing Council jointly agreed with the Federal Reserve System that the existing bilateral agreements of six euro area national central banks - namely, the central banks of Belgium, Germany, France, Italy, the Netherlands and Austria - with the Federal Reserve System will be allowed to lapse as they expire. Second, the current swap agreements between euro area national central banks and Norges Bank will be replaced by a new swap agreement between the ECB and Norges Bank amounting to E1,535 million as from 1 January 1999.","ECB budget for 1999","The Governing Council approved the ECB's budget for 1999, which gives the ECB the green light to recruit around 150 additional staff (both permanent and temporary) needed to support the new operational activities which the ECB will take on from 1 January 1999. This will bring the ECB's permanent staff to around 700, with nearly 50 limited contract staff.","We stand ready to take any questions you might have.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of the first meeting of the Governing Council of the European Central Bank in Stage Three of Economic and Monetary Union. For the first time, the Governing Council took decisions of an operational nature in the context of the single monetary policy.","On 1 January 1999 the euro was successfully launched. From that day onwards, the \"Eurosystem\" - that is, the ECB and the eleven national central banks of the Member States that participate in the euro - has assumed responsibility for the conduct of monetary policy in the euro area with the primary objective of maintaining price stability.","The Governing Council today expressed its satisfaction with the changeover to one integrated euro area money market in the initial days. Money market interest rate differentials across countries were significant only in the first few hours of 4 January 1999, but narrowed quickly thereafter, indicating that credit institutions were efficiently using arbitrage possibilities within the single money market.","As you will recall, the Governing Council of the ECB decided at its previous meeting that the corridor established by the interest rates on the Eurosystem's standing facilities would, as a transitional measure, be kept narrow. This was achieved by setting the marginal lending rate and the deposit rate at 3.25% and 2.75% respectively, for the period of 4-21 January 1999. We observed a relatively large recourse by credit institutions to these facilities in the first few days of Stage Three. To some extent, this is not surprising since the spread between the Eurosystem's marginal lending facility and the overnight money market rate has been relatively small. As we noted after our last meeting, the measure of a narrow corridor is aimed at facilitating the transition to the new regime by market participants. However, we also noted then that over a longer period of time, such a measure would hamper the development of an efficiently functioning euro area money market. We therefore confirm our intention to terminate this transitional measure following the next meeting of the Governing Council on 21 January 1999.","On 22 December 1998 the interest rate on the first main refinancing operation of the Eurosystem was set at 3.0%, with the intention to maintain this level for the foreseeable future. This first operation of the Eurosystem was successfully settled today. The decision on the amount of liquidity allocated to the banking system (EUR 75 billion) is aimed at providing sufficient liquidity to allow credit institutions, on aggregate, to neutralise their reserve deficit relatively soon within the first reserve maintenance period. It was taken on the basis of the liquidity conditions in the whole euro area money market, while paying due attention to the uncertainties related to the phasing-in of the new system.","Let me now turn to the Governing Council's discussion on recent monetary, financial and economic developments and the decisions that the Governing Council has taken today in the field of monetary policy.","At today's meeting, the Governing Council reviewed the latest data. The new pieces of information have not altered in any significant way the outlook for price developments. The Governing Council therefore decided that for the main refinancing operations to be announced on 11 and 18 January 1999 the same conditions will apply as for the first one, i.e. they will be fixed rate tenders conducted at an interest rate of 3.0%. A separate press release has already been issued on these ECB interest rate decisions at 6.15 p.m. today.","Furthermore, I should like to recall that the first longer-term refinancing operation will be announced on 12 January 1999 and settled on 14 January 1999. It will be conducted as a variable rate tender, using the single rate auction procedure.","Let me report in some more detail on the Governing Council's regular assessment of monetary, financial and economic conditions, and thereby provide the explanations for our decisions of today.","On 30 December 1998 we released to the public the first of the monthly statements on recent monetary developments in the euro area. The 12-month growth rate of the broad monetary aggregate M3 decreased from 5.0% in October to 4.5% in November 1998. The latest three-month moving average of M3 growth (covering the months September to November 1998) was approximately 4.7%. This result was similar to the value estimated for the three-month period of August to October 1998 (which was revised upwards from the figure of 4.5% published on 14 December 1998) and remains very close to the reference value of 4 1/2% set by the Governing Council on 1 December 1998.","With respect to the broadly based outlook for price developments and risks to price stability, financial market developments may be seen as indicating a favourable assessment of the recent monetary policy decisions of the Eurosystem, signalling that financial market participants expect the environment of price stability to continue. In this connection, I could mention the fall in long-term interest rates in the last couple of days to new historical lows and also the yield curve has shifted down.","No major news has come in on the outlook for the euro area economy since we met last time. Hence, we continue to face uncertainties originating from the evolution of the world economy in 1999, which are reflected in a weakening of industrial confidence in the euro area over recent months. Also, euro area real GDP growth in the third quarter weakened when compared with the first half of 1998. On the other hand, consumer confidence remained high until late 1998. This mixed picture is also reflected in other indicators. Order books and capacity utilisation point to a less optimistic outlook, while retail sales and the recent pattern in employment and unemployment suggest more favourable trends. In general, this pattern of mixed evidence appears to characterise the economic situation in the euro area around the turn of the year and we shall continue to carefully monitor developments.","With respect to the latest data on the Harmonised Index of Consumer Prices, the annual increase for November 1998 showed a further slowdown to 0.9%, compared with 1.0% in the two previous months. This development was in line with previous trends, i.e. it was mainly due to lower annual percentage changes in the prices of food and a further reduction in energy prices. On balance, the general environment continues to suggest that there is no significant upward or downward pressure on prices in the short term. The pattern of risks to price stability has remained broadly unchanged. On the one hand, downward pressures could materialise if import or producer prices were to fall further, while, on the other, wage developments would become a matter of concern if wage increases were higher than expected. In addition, any relaxation of fiscal policies would negatively affect the price climate as well as the credibility of the Stability and Growth Pact.","In conclusion, taking into account the latest evidence available, the Governing Council has not altered its assessment regarding the outlook for price developments. This is why, as I already mentioned, the Governing Council decided that for the two forthcoming main refinancing operations the same conditions will apply as for the first one, i.e. they will be fixed rate tenders conducted at an interest rate of 3.0%. We also confirm our intention to maintain this rate for the foreseeable future.","I should now like to inform you about the Governing Council's review of the changeover to the euro.","First and foremost, I am happy to be in a position to report that, overall, the transition to the euro within the Eurosystem and the banking and financial industry has been accomplished to our satisfaction. With regard to the changeover weekend itself, the ECB informed you, by means of a first press release issued in the evening of 3 January 1999, that there had been no reports of any incidents that would have impaired the smooth start of the system. With regard to the first experiences of our operational existence, let me focus in particular on the performance of the TARGET system.","Overall, during the first days of operation, the TARGET system has functioned well. TARGET has contributed substantially to the integration of the euro money market and it has made possible the consolidation of the treasury management of institutions with different activity centres throughout Europe. TARGET has handled more cross-border payments than anticipated in these early days of Monetary Union and, in doing so, has demonstrated its processing capacities.","The problems which are being experienced in this initial period can be regarded as \"teething troubles\"; after all, it is completely normal for operators - both in commercial banks and at the central bank level - to need some time to adapt to the system and to the new euro environment. In this respect, it is worth noting that more than 5,000 credit institutions are currently participating directly in TARGET.","The value of cross-border transactions settled through TARGET already exceeded EUR 310 billion on the second operating day and this figure does not yet include domestic RTGS transactions, which themselves accounted for at least another EUR 660 billion. The total value of transactions settled was therefore almost EUR 1,000 billion.","In addition to the news concerning TARGET, the ECB also informed you, by means of a press release on 5 January 1999, that its first refinancing operation - announced on 4 January 1999 - was completed successfully. Also here, the Governing Council obviously recognised that a learning process is still under way. The Governing Council will continue studying the best ways to adapt the liquidity provision to the changing conditions of this initial period.","As a final point, as indicated at our press conference on 22 December 1998, the Governing Council today revisited the issue of front-loading euro banknotes and coins.","The Governing Council holds the view that front-loading of euro banknotes and coins to the general public is excluded by Articles 10 and 11 of Council Regulation (EC) 974/98 on the introduction of the euro, since it would have the same effect as issuing or putting them into circulation.","However, front-loading of euro banknotes and coins is considered legally possible to credit institutions and security carriers as well as to other organisations (e.g. retailers and vending companies) if, but only if, legal or contractual arrangements can be put in place in each national legal system in order to ensure that euro banknotes and coins will not be put into circulation prior to 1 January 2002.","We stand ready to answer any questions you may have.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the European Central Bank.","Let me start with the Governing Council's discussion on recent economic developments and the decisions that the Governing Council has taken today in the field of monetary policy.","At today's meeting the Governing Council reviewed the latest monetary, financial and economic developments. After a careful examination of recent trends, in the context of its monetary policy strategy, it confirmed its earlier assessment that the outlook for price stability remains favourable. Therefore, it decided that for the main refinancing operations to be settled on 10 and 17 February 1999 the same conditions will apply as for the first such operations settled earlier this year, i.e. they will be fixed rate tenders conducted at an interest rate of 3.0%. In addition, the interest rate on the marginal lending facility continues to be 4.5% and the interest rate on the deposit facility remains 2.0%.","Let me report in more detail on the Governing Council's deliberations and thereby provide the explanations for the decisions which were taken today.","On 1 February 1999 we released the latest data on monetary developments in the euro area. These data confirmed the continuation of a favourable outlook for price stability in the euro area. The latest three-month moving average of annual M3 growth rates (covering the period from October to December 1998) was 4.7%. This result was unchanged from the average over the period from September to November 1998 and remained very close to the reference value for broad money growth of 4½% set by the Governing Council.","Developments in the narrow aggregate M1 have been more buoyant recently. Similarly, the growth of credit to the private sector continued to be high in December 1998. These developments seem to reflect, in particular, the current low levels of interest rates in the euro area. Although they are not considered by the Governing Council to imply inflationary risks at this juncture, in particular the developments in credit growth will need to be carefully monitored in the coming months.","With regard to the broadly based outlook for price developments and risks to price stability in the euro area, financial market indicators suggest that market participants continue to expect low inflation. Since early January, euro area long-term interest rates have continued to decline and the yield curve has shifted downwards.","At the same time, the latest developments are giving mixed signals as to the evolution of the world economy in 1999. On the one hand, recent events in Brazil have highlighted the fragility of the current situation in emerging markets, while on the other, output growth in the United States was much stronger in the last quarter of 1998 than expected. In the euro area too, available indicators continue to suggest a mixed picture. According to revised Eurostat estimates, real GDP growth remained broadly robust in the third quarter of 1998, while in more recent months activity may have slowed down. Such a slowdown is apparent in industrial production growth up to November 1998, in particular in the intermediate goods sector, which is particularly sensitive to any deterioration in the external environment. However, at the same time, production of capital goods and consumer durables has continued to expand rather strongly. A similar pattern can be observed in the decline in industrial confidence that has been apparent in the second half of 1998 in the euro area, while, however, stabilising in January 1999. On the other hand, consumer confidence in the euro area continued to increase in December and in January; it has now exceeded the peak level reached in 1990, with retail sales up to November showing continued solid growth and car sales growing strongly during the last months of 1998. Finally, the mixed picture is confirmed by other data. Order books, which overall declined slightly further in December, apparently increased again in January, particularly with respect to export orders. Capacity utilisation in the manufacturing sector, which started to decrease in the third quarter recovered again thereafter, while December data on unemployment appear to suggest that the decline in unemployment rates stalled around year-end.","Therefore, with regard to the cyclical situation, recent data seem to confirm our earlier assessment that there are downside risks for output growth and that production may have slowed down around the turn of the year. Nonetheless, in the opinion of the Governing Council there are also no clear signals as yet of a stronger than expected weakening in output growth. Given the mixed picture outlined above, the Governing Council emphasised that further thorough analysis and very close monitoring of underlying trends are needed before any conclusions can be drawn concerning the broad outlook for 1999 and 2000.","With regard to the latest data on the Harmonised Index of Consumer Prices, the annual increase for December 1998 showed a further slowdown to 0.8%, compared with 0.9% in November and 1.0% in October. This development was in line with previous trends; i.e. it was due mainly to a further reduction in energy prices and also, in December, to a decline in the price increases in non-energy industrial goods. Taking a forward-looking perspective, the general environment continues to suggest that there are no significant upward or downward pressures on prices in the short term. Furthermore, the pattern of risks to price stability has remained broadly unchanged. On the one hand, downward risks could materialise if import or producer prices were to fall further. On the other, given current wage demands, wage developments, especially when measured in real terms, could become a matter of concern and fiscal policies would also pose a threat to the favourable outlook for prices and growth and employment prospects, if the credibility of the Stability and Growth Pact were undermined. In addition, exchange rate trends need to be monitored closely given their importance for domestic price developments.","In conclusion, taking into account the latest evidence available, the Governing Council has not altered its assessment of the outlook for price developments. The Governing Council therefore decided to keep ECB interest rates unchanged at the levels currently prevailing.","I should like to take this opportunity to recall that real three-month interest rates, if measured as nominal rates corrected for current HICP inflation (as a very incomplete proxy), stood at a level of 2.3% in January; this is approximately 80 basis points lower than the level one year ago. At the same time, real long-term interest rates, measured on a similar basis, have reached a level of 3.0%, which is around 110 basis points lower than in early 1998. These levels are very low, both in comparison with other countries and with historical data for the euro area. Monetary and financial conditions therefore support continued economic growth in the euro area in line with price stability.","I should now like to inform you about some other matters considered by the Governing Council.","The end-of-day procedures relating to TARGET and access to the Eurosystem's standing facilities were reviewed by Governing Council today. The Governing Council agreed that from tomorrow on the deadline for requesting access to the marginal lending facility will coincide with the deadline for access to the deposit facility, i.e. 30 minutes after the actual closing time of TARGET. Furthermore, the deadlines for requesting access to the Eurosystem's standing facilities will be postponed by an additional 30 minutes on the last Eurosystem business day of a minimum reserve maintenance period.","As a final point, I should like to inform you that the ECB is planning an information campaign with regard to the launch of the euro banknotes on 1 January 2002. One of our aims in undertaking such an exercise will be to ensure that, by the time the euro banknotes become available, every person using and handling them will be fully acquainted with their features to the extent that everyone will be able to identify the banknotes as being genuine. In this respect, the ECB will be co-operating with the European Commission and the Member States to ensure that there will be no duplication of effort.","We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the Governing Council and of the General Council of the European Central Bank.","Let me start with the Governing Council's discussion on recent economic developments and the decisions that the Governing Council has taken today in the field of monetary policy.","After a comprehensive and careful examination of recent trends and ongoing evaluations of the economic outlook for the euro area economy, there was consensus that some of the risks identified earlier, in particular with regard to real GDP growth, had materialised in the fourth quarter of 1998. There was also consensus that the impact of these developments on the balance of risks for price stability would need to be examined further in the context of the monetary policy strategy adopted by the Eurosystem. At this juncture, taking into account all the information available, the Governing Council confirmed its earlier assessment of the outlook for price stability. Against this background it decided that for the main refinancing operations to be settled on 10 and 17 March 1999 the same conditions will apply as for the previous one, i.e. they will be fixed rate tenders conducted at an interest rate of 3.0%. In addition, the interest rate on the marginal lending facility will continue to be 4.5% and the interest rate on the deposit facility will remain 2.0%.","Let me report in some more detail on the Governing Council's deliberations, and thereby provide explanations for the decisions we took today.","Starting with the monetary developments in the euro area at the start of Stage Three of EMU, the broad monetary aggregate M3 expanded at an annual rate of 5.7% in January 1999, against 4.5% in December 1998. This upturn was largely due to an acceleration in overnight deposits. This, in turn, may be explained by the low level of interest rates, which also contributed to credit to the private sector to accelerate further in January 1999 to 9,4% which is particularly notable as other indicators of the economy are signalling a slowdown in activity.","Monthly data on monetary aggregates can be volatile. M3 growth is therefore monitored on the basis of three-month moving averages of the 12-month growth rate of M3, which stood at 4.9% in the period from November 1998 to January 1999. This was 0.2 percentage point higher than the figure recorded in the previous three-month period and is 0.4 percentage point above the reference value of 4½%. Against this background and in view of the uncertainty relating to special factors pertaining to the changeover to the Stage Three environment and the introduction of the euro, the Governing Council does not consider the acceleration of M3 at the start of Stage Three as a signal of future inflationary pressures. However, a close monitoring of monetary developments in the coming months remain necessary to give more conclusive evidence of the underlying causes and the permanent or temporary nature of the rise in M3 growth.","Turning to financial indicators, euro area capital markets underwent a correction in February, which was mainly linked to spillovers from the United States and Japan. This followed a decline in long-term interest rates in January which had brought bond yields in the euro area to the lowest levels seen since the late 1940s. The euro area yield curve shifted upwards across the entire maturity spectrum during February. Let me also recall that the nominal effective exchange rate of the euro area in early March stood around 1% below its level on 1 February and around 4% below its starting level on 4 January 1999.","At the same time, recent developments appear to have led to a reduction in some of the uncertainties surrounding the evolution of the world economy in 1999. This mainly relates to the strong performance of the US economy, but may also be due to signs of improvement in the real economies of some Asian. Nevertheless, in the view of the Governing Council, it is too early at present for a truly favourable assessment of the external environment for the euro area. Risks pertaining to external imbalances, continuing risk aversion and the corresponding weakness of private long-term capital flows and real investment to emerging market economies will need to be examined closely.","In the euro area the latest indicators confirm that those risks which were identified earlier have now materialised to some extent. According to preliminary and incomplete data from national sources, real GDP growth in the euro area weakened in the fourth quarter of 1998 when compared with the previous quarter. While more precise estimates will soon become available from Eurostat, the evidence available suggests that activity in the euro area has been slowing down in recent months. This is particularly apparent in the production of themanufacturing sector, where output in the fourth quarter of 1998 fell by almost 1% compared with the previous quarter. These developments broadly confirm the pattern observed earlier in industrial confidence, which was on a declining trend in the second half of 1998. The latest data on industrial confidence in the euro area, i.e. those released by the European Commission today, indicate that industrial confidence has weakened further. Some recent wage developments in the euro area might have contributed to that. The level of unemployment has remained more or less unchanged over the past four months. Finally, consumer confidence in the euro area has remained unchanged from the high levels seen at the beginning of the year. With regard to capacity utilisation in the manufacturing sector, which fell further in the fourth quarter of 1998, and retail sales, which up to November 1998 pointed towards broadly sustained growth, no new data are yet available.","Overall, with regard to the cyclical situation, recent data confirm our earlier expectations that there are still downside risks for output growth. The Governing Council will continue its thorough analysis and very close monitoring of underlying trends and review its broad outlook for the euro area accordingly on an ongoing basis, taking into account in a forward-looking manner the impact of both domestic and external developments.","With regard to the latest data on the Harmonised Index of Consumer Prices (HICP), the annual increase for January 1999 was 0.8%, which is unchanged compared with the previous two months (taking account of the most recent revisions). Looking at a breakdown of the HICP, a slight decline in the rate of increase in service prices (from 1.9% in December 1998 to 1.8% in January 1999) was offset by a slight increase in goods prices (from 0.1% to 0.2%). The fall in the rate of change in services prices was mainly due to lower price increases for transport and communications; this may have been a reflection of increased competition in these sectors. On the other hand, downward pressure from energy prices on goods prices diminished somewhat.","On balance, the current data continue to suggest that there are no significant upward or downward pressures on prices in the short term. The pattern of risks to price stability has also remained broadly unchanged on balance. On the upward side, wage developments are a matter of concern, as would be any loosening of fiscal policies and the implications of this for achieving the objectives laid down in the Stability and Growth Pact. In addition, recent exchange rate trends need to be monitored closely also in terms of their impact on prices. Concerning downward risks, in particular the slowdown in the euro area economy is a cause for concern. In conclusion, taking the latest available evidence into account, at today's meeting the Governing Council confirmed its assessment regarding the outlook for price developments. The Governing Council therefore decided to keep ECB interest rates unchanged at the levels currently prevailing.","I should now like to inform you about some other matters considered today.","The auction technique for the longer-term refinancing operations was reviewed by the Governing Council today.In its first two longer-term refinancing operations (settled on 14 January and 25 February 1999), which are as a rule conducted by means of variable rate tenders, the Eurosystem applied the single rate (\"Dutch\") method of allotment. The single rate method was chosen in order to encourage less experienced counterparties to participate in the tender. The Governing Council takes the view that all interested counterparties should by now be sufficiently accustomed to the longer-term refinancing operation also to be in a position to participate in this type of operation under the more market-oriented multiple rate (\"American\") method of allotment. Against this background, the Governing Council has decided that the multiple rate method of allotment will be applied starting from the next longer-term refinancing operation (to be settled on 25 March 1999), until otherwise indicated.","Finally, let me inform you that the General Council today discussed the monetary policies of the central banks of the non-participating Member States against the background of the monetary policy set by the Eurosystem. As you will know, the General Council has taken over those tasks of the European Monetary Institute (EMI) which still have to be performed during Stage Three because of the derogations of some Member States. One of these tasks relates to strengthening the co-ordination of the monetary policies in the Community with the aim of ensuring price stability. The General Council intends to conduct these co-ordination exercises biannually in future.","We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council.","Let me start with the Governing Council's discussion of recent economic developments and the decisions that the Governing Council has taken today in the field of monetary policy. After an in-depth review of recent monetary, financial and economic developments, the Governing Council decided that the interest rate for the ECB's main refinancing operations will, from next week on, be set at 2.50%. In addition, the interest rate on the marginal lending facility will be lowered to 3.50% and the interest rate on the deposit facility to 1.50% with effect from tomorrow.","Let me report in some more detail on the reasons for which the Governing Council, in the context of the ECB's monetary policy strategy, deemed it appropriate to lower interest rates.","As regards monetary developments in the euro area, the acceleration of monetary aggregates seen in January 1999 was partly reversed in February. The 12-month growth rate of M3 declined from 5.6% in January to 5.2% in February. This largely reflected a slowdown in the high pace of growth of overnight deposits, presumably reflecting the unwinding of the influence of some special factors related to the start of Stage Three and the introduction of the euro. As the February figures were somewhat higher than those observed in late 1998, the three-month moving average of M3 growth covering the period from December 1998 to February 1999 still increased by 0.2 percentage point to 5.1%. The Governing Council does not regard current monetary trends as constituting a signal of future inflationary pressures, taking into account that the rate of growth of M3 is still close to the reference value of 4½% and considering that it may to some extent mirror the specific environment related to the start of Stage Three.","The Governing Council noted that the Harmonised Index of Consumer Prices (HICP) rates of increase for the euro area have now been below 1% for several months, and even though some increases are likely to be seen in coming months owing to the reversal of energy price trends, the more lasting effect on the outlook for future prices comes from the economic environment. Indeed, reflecting the economic environment, many projections for future consumer price increases in the euro area have been revised downwards. In our current assessment of the situation, it appears unlikely that HICP increases will be out of line with the Eurosystem's definition of price stability.","With regard to financial indicators, both bond and foreign exchange markets were lately under the influence of global factors. After having risen somewhat in February 1999, in tandem with US bond yields, during March euro area government bond yields remained broadly unchanged. At the same time the US dollar strengthened further in recent weeks in the light of international developments.","When looking in some more detail at the evolution of the world economy, positive signs relate to the continuously strong growth of the US economy, the gradual recovery in some Asian countries and indications of a stabilisation in Latin America. However, there is no noticeable evidence as yet of a turnaround in Japan.","In the euro area, overall growth prospects worsened towards the end of last year, as reported when we met in early March. In the meantime, official data confirm that real GDP growth in the euro area weakened in the fourth quarter of 1998, when compared with the previous quarter. The weakness is particularly apparent in the manufacturing sector, where confidence deteriorated further. Partial information covering a substantial part of the euro area appears to confirm this picture. Most recent data on total employment in the euro area point to a certain deceleration in net job creation in the last quarter of 1998.","As regards the latest available data on the HICP, the annual increase in consumer prices has remained unchanged at 0.8% over several months up to February 1999. Underlying this stable rate of price increases have been offsetting developments at the level of services and goods prices. In February, services price increases moderated further slightly, mainly owing to downward adjustments in prices in the telecommunication area. At the same time, goods prices contributed slightly more to overall HICP increases than before, due both to price developments for unprocessed food and a deceleration in the fall in energy prices. It may be worth noting that goods prices may continue to move upwards temporarily, in particular as oil prices increased strongly from mid-February onwards. Such movements reflect the higher volatility of price changes of some categories of goods, in particular imported oil and other commodities.","The interest rate decision has been taken in a forward-looking perspective, focusing on the medium-term trends in inflation and the compatibility of these trends with the Eurosystem's definition of price stability. In the view of the Governing Council, monetary growth is - at the current juncture - not a risk for future price stability.","The decision taken today keeps monetary policy on a longer-term stability-oriented course and, by doing so, contributes to creating an economic environment in which the considerable growth potential of the euro area could be exploited. Those responsible for other policy areas are urged now even more to take the necessary steps to improve longer-term growth prospects for the euro area through strictly and decisively adhering to the aims of the Stability and Growth Pact and through convincing structural reforms in the economy.","I should now like to inform you about some of the other matters considered today.","The Governing Council examined the outcome of a test run of the production of euro banknotes. This so-called zero production run involved the printing works of the participating countries. The main purposes of this test were, first, to check the compliance of the \"test banknotes\" against the technical specifications and, second, to prove that all printing works are in a position to produce the euro banknotes to the same high quality standards. The result of this test was positive, as only some minor technical specifications need to be modified slightly. The printing works will now start their final preparations for the commencement of the mass production of the euro banknotes.","The Governing Council also decided to establish an Analysis Centre for Counterfeit Euro Banknotes. As is already indicated by its name, the main purpose of this Analysis Centre will be to technically analyse and classify new types of printed counterfeits, and to store the related technical data in a database. The Analysis Centre will be located at the ECB in Frankfurt.","We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council reviewed, as usual, the main monetary, financial and other economic indicators in line with its monetary policy strategy. Following this discussion it decided to keep the ECB's interest rates unchanged. The interest rate on the main refinancing operations will thus remain 2.5%. In addition, the interest rate on the marginal lending facility will continue to be 3.5% and that on the deposit facility will remain 1.5%. Let me give you some details about our latest assessment of the monetary policy stance and thereby provide explanations for the decisions taken today.","Overall, monetary developments and our broadly based assessment of future price developments do not signal dangers to price stability over the short and medium term.","With regard to monetary developments in the euro area, in March 1999 the 12-month rate of growth of M3 remained constant at 5.1%. While the pace of increase in overnight deposits reduced further, signalling the waning influence of the uncertainties surrounding the launch of the euro, deposits with an agreed maturity of up to two years grew at a stronger pace in March than in February 1999. The latest figure for the three-month moving average of M3 growth, covering the first quarter of 1999, was 5.2%. This was 0.2 percentage point higher than in the previous three-month period, covering the period December 1998 to February 1999. The Governing Council also noted that the annual rate of growth of total credit was broadly stable at 7.5% in March 1999. In line with the assessment it had made on the occasion of its previous meetings, the Governing Council took the view that recent monetary trends should not be seen as a warning signal with regard to the future evolution of inflation. As we have emphasised in the past, the monetary data in early 1999 may be affected by the special circumstances related to the changeover to Stage Three of EMU. In addition, the three-month moving average of M3 growth remains relatively close to the reference value of 4½%.","As regards financial indicators, I should like to stress that recent developments in bond yields in the euro area were accompanied by some decoupling of yields from those in the United States, as differentials between euro area long-term interest rates and comparable rates in the United States have widened.","As regards the evolution of the world economy, recent developments tend to confirm the picture of a mild overall improvement in the external environment beyond the euro area. As before, however, the main features range from continuously strong growth of the US economy to continuously weak output in Japan.","For the euro area, only a few additional data for economic indicators have become available, and the assessment of forthcoming GDP developments is currently complicated by the fact that the next release will be based on revised data in accordance with the new concept of the European System of Accounts (ESA 95). Industrial production declined at the beginning of this year, and data on retail sales volumes suggest that the pace of growth slowed down somewhat around the turn of the year, but recently there are preliminary indications of some improvement. Recent developments in the labour market show a somewhat decelerating employment growth towards the end of last year. The rate of unemployment remained unchanged in March 1999, following two consecutive declines in January and February. Industrial confidence declined further in the first quarter of 1999, but preliminary April figures from the European Commission point to a slight improvement. Given the latest developments up to April, it would appear that consumer confidence reached a peak at the beginning of this year since when it has moderated slightly.","As expected, the trend towards decreasing inflation rates appears to have been reversed in March. In March the annual rate of increase of consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) was 1.0%, compared with 0.8% in the previous four months. This was essentially a consequence of the substantial rise in oil prices which began in mid-February feeding through to energy prices in the HICP. In addition, unprocessed food prices have continued to exert some upward pressure on overall price increases in recent months. Excluding the more volatile HICP components of energy and food, the rate of increase in consumer prices in March remained at 1.1% - i.e. unchanged from the rate observed in February and marginally lower than that recorded at the turn of the year.","In conclusion, at this point in time the general outlook for price stability remains favourable. Although the lower effective exchange rate of the euro and the rise in oil prices may lead to some upward pressure on headline HICP inflation in the coming months, the current economic situation is likely to contribute to containing this upward pressure. At the same time, current monetary developments and other available indicators do not point to inflationary risks over the medium term. On the basis of this assessment the Governing Council decided to keep the ECB's interest rates at their current levels.","In additionto reviewing the mainmonetary, financial and other economic indicators, the Governing Council considered a report prepared by the ECB's Banking Supervision Committee on \"The effects of technology on the EU banking systems\". The report assesses the extent to which technological developments have taken place and are expected to occur in the EU banking systems, the main categories of banking risks affected by these developments and the strategic responses that EU banks are devising. The Governing Council agreed to publish the report, which will be made available in due course.","We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the General and Governing Councils of the ECB.","At its meeting today, the Governing Council reviewed, as usual, the main monetary, financial and other economic indicators in line with its monetary policy strategy. Following this discussion, it saw no need to change the interest rates on the ECB's monetary policy instruments. The interest rate on the main refinancing operations thus remains 2.5%. In addition, the interest rate on the marginal lending facility continues to be 3.5% and the interest rate on the deposit facility is maintained at 1.5%. Let me give you some details about our current assessment of the monetary policy stance, and thereby provide explanations for the decisions taken today.","With regard to monetary developments in the euro area, the 12-month growth rate of M3 decreased from 5.2% in March to 4.9% in April. This decline was accounted for mainly by a contraction in deposits with an agreed maturity of up to two years, which in turn may have been connected with some portfolio shifts towards longer-term financial instruments not included in M3. The three-month moving average of the M3 growth rates covering February to April 1999 fell to 5.0% from 5.3% in the previous three-month period covering the first quarter of 1999, thereby moving closer to the reference value of 4½%. Against this background, the Governing Council took the view that current monetary developments are in line with the maintenance of price stability over the medium term.","The Governing Council also took note that the figures for credit growth were revised downwards significantly for early 1999 and that the annual growth rate of total credit declined to 6.4% in April 1999. The annual growth rate of loans to the private sector nonetheless remained relatively high in April 1999, at 8.4%. This suggests that households and firms are at present exploiting the favourable interest rate conditions to finance their consumption and investment plans.","As regards financial indicators, long-term government bond yields in the euro area have increased since the end of April. In our view, this upward movement of long-term bond yields primarily reflected a spillover of developments in the US bond market, where a larger increase was seen. At the same time, there was little indication that developments in euro area bond yields reflected any change in market expectations for inflation in the euro area. Against this background, we have observed a further slight widening of the differential between US and euro area long-term interest rates since end-April. In addition, since short-term interest rates were broadly unchanged in the euro area during May, the euro area yield curve slightly steepened.","Turning to exchange rate developments, the Governing Council noted that from the start of Stage Three to 1 June the euro depreciated by 7.7% when measured in nominal effective terms. Vis-à-vis the US dollar the exchange rate declined from around 1.18 to 1.04 over the same period. The current effective exchange rate leveI broadly corresponds to those observed in summer 1997 and spring 1998. In the view of the Governing Council the major economic factor behind these short term developments is constituted by cyclical divergences between the euro area and the United States, which are expected to diminish over the course of this year and thereafter. The euro is a currency firmly based on internal price stability and therefore has a clear potential for a stronger external value. Since the start of Stage Three of EMU the euro has become the second most important international currency in the world, and the policy of the Eurosystem will safeguard its internal purchasing power, thereby also supporting the international role of the euro. As already mentioned, nominal long-term interest rates are low by any historical standard, reflecting the confidence of global investors in the euro.","Looking at recent developments in the world economy, the risks seem to have become more balanced. Among other factors, this relates to somewhat firmer expectations that the growth of the US economy will remain strong in the near future. In addition, there now seems to be less danger of contagion effects among emerging market economies, given that economic and financial conditions have improved in a number of countries, notably in South-East Asia.","For the euro area, essentially no additional data on real economy indicators have become available since our last meeting. On the basis of currently available data the picture remains unchanged: there was a noticeable slowdown at the end of last year and there is only limited evidence as yet that activity may have seen a turnaround in the course of the first months of 1999. At the same time, when considering the broad outlook for economic developments, the Governing Council today agreed that more favourable conditions for a recovery in the course of 1999 and stronger growth thereafter are in place. For the euro area to better exploit its growth and employment potential, decisive structural measures in other fields of economic policy are urgently needed. In this context, it is crucial that the conditions of the Stability and Growth Pact are strictly adhered to.","With regard to the latest data on the Harmonised Index of Consumer Prices (HICP), the annual increase for April was 1.1%, up by 0.1 percentage point from the rate of increase in the previous month. As in March, when the overall rate of consumer price increases rose by 0.2 percentage points, the rise in April was caused by increases in energy prices. However, in April, the upward movement in energy prices has been partly offset by developments in prices for other goods and services. Excluding the HICP components for energy and seasonal food, the rate of increase in consumer prices in April was 1.0%, declining from 1.1% in the two previous months.","In conclusion, given recent monetary trends and the development of other indicators, the outlook for price developments remains in line with the objective to maintain price stability. Against this background, the Governing Council decided to maintain the ECB interest rates at the current levels.","Other business","In addition, it gives me great pleasure to announce the launch of the ECB's Working Paper Series. The initial publication consists of five papers, the titles of which are listed in a separate press releasethat will be issued to you this afternoon. The papers have been available on the ECB's Web site since noon today.","We are now at your disposal should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the ECB, which was attended by the EU Council President, Mr. Niinistö, and by Mr. de Silguy, European Commissioner.","The Governing Council reviewed the main monetary, financial and other economic indicators in line with its monetary policy strategy. As a result of its examination it decided not to change the ECB interest rates. The interest rate on the main refinancing operations of the Eurosystem will thus remain 2.5%. In addition, the interest rate on the marginal lending facility will continue to be 3.5% and that on the deposit facility has been kept at 1.5%.","Let me give you some details about our latest assessment of the monetary policy stance and thereby explain the decisions taken today.","With regard to monetary developments in the euro area, the three-month moving average of M3 growth, covering the period from March to May 1999, increased slightly to 5.2%, from 5.1% in the three months up to April. Consequently, M3 growth remained above the reference value of 4½%. The major contribution to the rise in M3 growth in May came from overnight deposits. With the exception of repurchase agreements, marketable securities included in M3 also experienced higher growth.","The annual growth rate of total credit to euro area residents rose in May, from 7.3% in April, to 7.9%. The pick-up in credit growth was visible both in loans and in securitised lending and occurred in respect of credit to both the private sector and the general government. The growth of loans to the private sector rose to 10% in May, stimulated by the further decline in bank lending rates. Taken together with the high pace of growth of the most liquid components of M3, this evidence supports the view that households and firms in the euro area do not currently face liquidity constraints. In the view of the Governing Council, this situation is not seen as threatening price stability at present. However, a reassessment may be appropriate if money and credit growth increase further.","Turning to financial market indicators, we have seen a significant upturn in long-term interest rates in the euro area since the end of May. This development was certainly affected by the continued increase in bond yields in the United States over the same period. More recently, however, domestic factors have probably played a more important role in the determination of domestic bond yields than was previously the case. These factors include financial market perceptions of more evidence pointing to a further strengthening in economic activity in the euro area during the year, accompanied by a modest pick-up in inflation expectations from the low levels seen in recent months. The more positive market sentiment regarding the prospects for euro area output growth has also been reflected in a narrowing over recent weeks of the relatively wide differentials between US and euro area bond yields. Exchange rate developments do not yet reflect these very same factors.","As we have said on earlier occasions, the Governing Council believes that the euro is firmly based on internal price stability and therefore, has the clear potential to achieve a stronger external value. The Governing Council reaffirmed its view at today's meeting that the monetary policy of the Eurosystem will safeguard the euro's internal purchasing power and will thereby support its international value.","The prospects for a more broadly based and sustained recovery in the world economy have become stronger. The outlook has improved further, in particular in relation to expectations of continuously strong growth in the US economy and some tentative indications that the prolonged decline in activity in Japan may have come to a halt. In addition, recent developments in economic and financial indicators for the emerging market economies suggest that a recovery is under way in South-East Asia. Moreover, to the extent that the Kosovo conflict may have had a negative impact on economic sentiment in a number of countries, its end has eliminated a risk to the outlook for economic developments in the euro area. As recent developments in Latin America indicate the outlook has improved only moderately.","With reference to developments in economic activity in the euro area, some important data have been released since our last meeting. Most notably, Eurostat has now started to publish euro area national accounts data which are based more closely on data compiled in accordance with the new ESA 95 methodology. According to these estimates, the quarter-on-quarter rate of real GDP growth increased to 0.5% in the first quarter of this year, compared with 0.3% in the previous quarter. At present there is insufficient experience with regard to the properties of the new ESA 95 data, in particular their susceptibility to revision, and some caution should therefore be exercised when interpreting the most recent developments in real GDP growth. However, further evidence supporting the view that growth will recover in the course of this year is also provided by the recent development of other indicators of economic activity. Following successive declines, the level of industrial production appears to have stabilised in the months up to April. Given the developments in industrial confidence up to June, it would appear that the trough was reached at the end of the first quarter. This points to a turning-point in activity in the industrial sector. At the same time, household sector demand patterns appear to be broadly unchanged, as indicated by a still high level of consumer confidence. Therefore, while the signs of recovery are still modest and are not yet reflected in labour market developments, recent data appear to confirm the outlook for a continued improvement in the course of this year. The Governing Council considers it necessary that other policy areas make a decisive contribution to bolstering confidence in the euro area's growth potential, particularly by means of firm structural reform measures to enhance the sustainability of public finances and the efficiency of labour and product markets.","Looking at the latest developments in consumer prices, the annual rate of increase in the Harmonised Index of Consumer Prices (HICP) fell to 1.0% in May, down from 1.1% in April. While energy prices, which had caused the rise in the overall HICP rate in the previous two months, continued to exert some upward pressure, this was more than offset by movements in other components. A lower rate of increase was recorded in May for both processed and unprocessed food prices and for services prices. Hence the decline in the overall HICP rate was also reflected in the HICP rate excluding the two more volatile components - energy and seasonal food. These developments have to be seen partly in the context of a one-off base effect resulting from country-specific increases in indirect taxes which occurred last year. Against this background, the expectation remains that over the next few months the rate of price increases will tend to edge upwards, mainly reflecting the increase in energy prices.","In conclusion, the outlook for the maintenance of price stability in the euro area remains favourable and in line with the Eurosystem's definition of price stability. The Governing Council therefore decided to maintain the prevailing levels of the ECB interest rates. At the same time it noted that the sustained growth of monetary and credit aggregates, the slight improvement in output growth in early 1999, the expectation of a strengthening in economic activity in the course of 1999 and a further acceleration next year all indicate that any upward pressures on prices will have to be monitored very carefully.","Let me now give the floor to the Vice-President to introduce two additional topics we discussed during the Governing Council meeting:","In addition to reviewing the main monetary, financial and other economic indicators, the Governing Council also considered the days on which the TARGET system would be closed in the year 2000.","With regard to the calendar of TARGET operating days for 1999, the ECB announced on 31 March 1999 that the TARGET system would close on 31 December 1999, in addition to Saturdays and Sundays, Christmas Day and New Year's Day.","However, considering the financial and social cost of keeping the TARGET system open on days which are traditionally public holidays (or bank holidays) in most of the euro area, and in view of the indication given by the European banking industry that it would welcome the closing of TARGET on such days, the Governing Council today decided in principle that next year - in addition to Saturdays and Sundays - TARGET will be closed on New Year's Day, Good Friday, Easter Monday, 1 May (Labour Day), Christmas Day and 26 December. In countries where one of these days is not a public holiday, the national central bank will endeavour to close the national RTGS system on the day in question or, when this is not possible, will seek to limit domestic payment activity as much as possible.","You will find further information relating to this decision in the separate press release to be issued today.","Last and certainly not least, it is my great pleasure to announce a very important milestone along the road to the introduction of the euro banknotes. The production of the euro banknotes has begun and, by the end of this month, euro banknote production will be under way in printing works in several euro area countries.","As you will remember, we presented the draft euro banknote designs in December 1996. The designs were subsequently adjusted and refined in order to meet the technical specifications in full. Intensive work then began to convert the detailed designs into the origination material, in other words the final dies, films and plates which enable printing plates to be made.","Production of the pilot series started in September 1998 and was completed a few months ago. The printing of this pilot series involved the production of several million banknotes under normal operating conditions. This was a success and we therefore agreed that the participating national central banks could release their printing orders.","The number of euro banknotes to be printed for the 11 participating Member States before the launch - which will take place exactly 900 days from today - is estimated at 13 billion. To give you an idea of the size of the production process, if the 13 billion euro banknotes were placed end to end, they would stretch to the moon and back twice.","As you may remember, the Governing Council has already decided that the euro banknotes will not bear any national symbols and, therefore, will be totally identical irrespective of where they are produced. The euro banknotes are being produced in accordance with specifications of the very highest standard and they will include a wide range of sophisticated security features.","The ECB has today issued a press release on this matter. A press folder containing, inter alia, TV footage and a brochure on the euro banknotes and coins has also been made available to the media. The brochure is available in all 11 official languages of the European Union.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB, which were attended by Mr. de Silguy, European Commissioner.","The Governing Council reviewed the outlook for price developments and the risks to price stability in the euro area, in line with its monetary policy strategy. As a result, the Governing Council decided not to change the prevailing ECB interest rates. The interest rate on the main refinancing operations of the Eurosystem will thus remain 2.5%. In addition, the interest rate on the marginal lending facility will continue to be 3.5% and that on the deposit facility has been kept at 1.5%.","Let me give you some details about our review of the latest information on monetary, financial and other economic developments, as well as about our latest assessment of the monetary policy stance and thereby explain the decisions taken today.","With regard to monetary developments in the euro area, the 12-month growth rate of the broad monetary aggregate M3 increased from 5.3% in June to 5.6% in July 1999. The latest three-month average of M3 growth, covering the period from May to July 1999, rose to 5.4%, compared with 5.3% in the previous three-month period from April to June 1999. Overall, the annual rate of growth of M3 has been moving away from the reference value of 4½% since the start of the year. This upward movement may be explained to a large extent by the very low opportunity costs of holding monetary assets, especially the most liquid components, but perhaps also by the gradually improving economic conditions in the euro area. At the same time, the annual growth rate of credit to the private sector remained high, even though it declined by 0.5 percentage point in July, to 10.4%.","The monetary policy strategy of the Eurosystem assigns a prominent role to the behaviour of M3. Accordingly, recent monetary developments merit close attention. At the same time, taking into account the fact that we are still in a very early phase of Monetary Union and that figures for broad money growth have been subject to some revisions in recent months, shorter-term monetary developments need to be interpreted with caution.","Concerning financial market indicators, the upturn in long-term interest rates in the euro area seen since early May continued in August and early September. Domestic factors seem to have played a dominant role, as indicated by the fact that differentials between US and euro area bond yields have narrowed further. In particular, market participants appear to be increasingly optimistic about the prospects for economic activity in the euro area. At the same time, expectations for inflation, as reflected by, inter alia, the signs emanating from index-linked bonds issued in the euro area, tend to indicate that markets still expect an evolution of consumer prices, which will remain compatible with price stability.","Developments in the world economy continue to show signs of improvement. Growth in the US economy continues and some positive economic signals have been recorded for Japan. While the outlook for stronger growth in the global economy is also supported by recent developments in other regions, notably South-East Asia, some risks remain, primarily in relation to the strength of the recovery in Latin America.","As regards economic activity in the euro area, industrial production data up to June point to a further improvement in output growth in the second quarter of this year, as has already been indicated by various survey data. Moreover, available evidence in terms of retail sales data and consumer confidence, while somewhat more mixed, suggest broadly sustained consumption growth. These developments are consistent with recently published forecasts, which foresee an upturn in economic growth in the course of this year. The downside risks pertaining to these projections have tended to recede and real GDP growth might eventually turn out to be somewhat higher than currently forecast.","As generally expected, consumer price increases, as measured by the Harmonised Index of Consumer Prices (HICP), picked up in July, with the annual rate of change rising from 0.9% in June to 1.1% in July. This effectively reversed the downward movement in the overall HICP rate, which had been evident since April 1999. While prices for unprocessed food declined further in July, this downward effect on the overall HICP rate was more than offset by a stronger increase in energy prices, resulting from a continued rise in oil prices. We expect consumer price increases to rise somewhat further from their July levels, mainly as a consequence of higher oil prices. However, at this stage we also expect this further increase to level out below the ceiling we have defined as being compatible with price stability over the medium term.","In conclusion, the prospects for a sustained economic upturn in the euro area are good, as are the chances of continued price stability. However, we remain vigilant taking into account the upward risks to price stability. In particular, with a view to conducting a thorough assessment of the risks to price stability in the medium term, the increase in monetary growth over recent months and the high growth rate of credit to the private sector need to be monitored very carefully. In addition, the short-term upward pressure on consumer prices, which stems from the increase in oil prices over recent months and the lagged pass-through of developments in the exchange rate, have to be taken into account. If accompanied by continued wage moderation, these factors alone should not be expected to threaten the current outlook for price stability. Accordingly, the results of the wage bargaining round for the year 2000 will play a particularly important role for the further assessment of price developments in the euro area.","The only way to prolong a non-inflationary recovery, and hence to substantially re-absorb the still very high unemployment, is for all responsible parties to act decisively, in the near term, to increase flexibility in the labour, product and service markets. This would also be the best way to allow the economy to take full advantage from the present stance of monetary policy.","Taking all this information into account, the Governing Council decided to maintain the prevailing ECB interest rates. In addition, it stressed that low inflation and therefore low interest rates should encourage higher investment, helping to prevent the emergence of capacity constraints during economic expansion. At the same time, the expected improvement in economic activity offers greater opportunities to cut fiscal deficits further and to enhance structural reforms. Indeed, the creation of this virtuous circle depends on all policy-makers playing their part.","Let me now give the floor to the Vice-President to introduce three additional topics, which we discussed during our meetings.","In addition to reviewing the main monetary, financial and other economic indicators, we discussed issues relating to the transition to the Year 2000.","We are now approaching the final phase of testing activities in connection with preparatory work for the Century Date Change. On 25 September 1999 the ECB and the EU national central banks will conduct a demonstration of the TARGET Year 2000 compliance in which - according to current information - several hundred EU credit institutions will participate. Prior to this, the ECB and the national central banks have already successfully tested their TARGET components first at the national level, and thereafter in cross-border tests. To a large extent credit institutions have already taken part in these tests.","In parallel, as announced a few weeks ago, on 29 June 1999 the ECB together with the national central banks successfully completed the bilateral testing of the ESCB applications that are necessary for the conduct of monetary policy operations. The testing exercise, together with the parallel remedial actions, has proved that these systems are Year 2000 compliant.","You may recall that on 15 July 1999 we decided to close TARGET on 31 December 1999, in order to smooth the transition not only for the ESCB institutions, but also for the other financial institutions. This day can thus be kept free for end-of-year operations and for making full back-ups of the relevant systems.","In the area of TARGET, as well as in the area of monetary policy implementation and liquidity management, we are also reviewing our contingency procedures to minimise any potential Year 2000-related impact. It is worth noting that general contingency procedures had already been put in place shortly before the launch of the euro.","In addition, we will use an efficient communication infrastructure between the ECB and the national central banks to monitor developments over the Year 2000 transition period. The ECB will also share information with the Joint Year 2000 Council and will thereby extend its monitoring capabilities beyond the Eurosystem to a global perspective.","As far as our monetary policy framework is concerned, we are convinced that it is flexible enough and has built-in mechanisms designed to deal with any level of liquidity demand that might arise in the euro markets. Indeed, should any adaptation be advisable, this would be of limited importance and consistent with the overall set-up. We have analysed different scenarios and have come to the conclusion that the Eurosystem will be in a position to cope with any potential increase in the demand for liquidity. The stock of banknotes held by national central banks is sufficient to allow for a considerable additional demand for banknotes in circulation and the amount of collateral available in the Eurosystem will be sufficient to allow for the corresponding increase in refinancing needs of the banking system.","We are therefore confident that the Eurosystem will continue its operations smoothly on 3 January 2000 after the Century Date Change.","We also reviewed cross-border retail payment services, which are essential for the smooth functioning of the Single Market. We believe that citizens and businesses can only benefit fully from the fundamental principles of the free movement of goods, services, capital and people if they are also able to transfer money as rapidly, reliably and cheaply from one part of the European Union to another, as is now the case within each Member State. Despite the introduction of the euro, however, there is still a clear gap between the service levels of domestic and cross-border retail payment systems in terms of quality, efficiency and pricing. The substantial disparities between domestic and cross-border services ought now to be reduced, and should ultimately disappear. In order to encourage the development of cross-border payment systems enabling the public to benefit more fully from the single currency, the Eurosystem has drawn up a set of objectives for cross-border retail payments in the euro area. These will be detailed in a separate press release which will be issued in the coming days. The Eurosystem calls on the banking and payment service industry to fulfil these objectives by 1 January 2002 at the latest.","Finally, I would like to inform you that we also discussed issues related to fraud prevention. I would like to emphasise that the ECB shares the concerns of the European Parliament, the EU Council and the Commission about the protection of the Communities' financial interests against fraud and other detrimental activities. Consequently, for the sake of transparency, efficiency and accountability, the Governing Council decided to establish an external Supervisory Committee to enforce an Anti-Fraud Scheme at the ECB. This Committee will establish a co-operative relationship with the European Anti-Fraud Office (OLAF).","We are now at your disposal, should you have any questions.","Ladies and gentlemen,","the Vice-President and I are here today to report on the outcome of today's meetings of the Governing Council of the ECB, which was attended by the European Commissioner, Mr. Solbes Mira.","The outcome of today's discussion was that the Governing Council has decided to leave the prevailing ECB interest rates unchanged. The interest rate on the main refinancing operations of the Eurosystem will thus remain 2.5%. In addition, the interest rate on the marginal lending facility will continue to be 3.5% and that on the deposit facility has been kept at 1.5%.","The Governing Council conducted an intensive discussion of the current monetary policy stance in which it was concluded that the balance of risks to price stability remains on an upward trend.","With regard to monetary developments in the euro area, the three-month average of the 12-month growth rates of M3 for the period June to August 1999 increased to 5.6%, from 5.5% in the three-month period ending in July 1999. While a good deal of caution is required when interpreting short-term monetary developments, it should be noted that the 12-month growth rate of M3 has displayed an upward trend during 1999. The high growth of M3 seems to be related to the low level of opportunity costs of holding monetary assets, particularly the most liquid components. Furthermore, the gradual improvement in the real economic situation may have fostered the expansion of M3.","Credit to the private sector also continued to expand at a fast rate in August 1999, namely 10.7%. Since the start of Stage Three credit to the private sector has been expanding at rates of around 10%. Developments in credit growth in August tend to confirm that the demand for loans remains strong, supported by low bank lending rates, indicating that euro area residents do not face borrowing constraints.","On balance, the Governing Council believes that monetary conditions, especially the sustained growth of M3 in excess of the reference value, signal a rather generous liquidity situation in the euro area.","Long-term nominal interest rates in the euro area continued to increase in September. While it is likely that this increase is related to expectations of a recovery of activity in the euro area, expectations of increasing inflationary pressure may also play a role.","The more favourable expectations for economic development in the euro area are partly connected with a further improved outlook for the world economy, as is also reflected in the recent upward revision of the forecast for world growth by the IMF. The growth of the US economy continues to be strong, and in Japan economic indicators are now more clearly pointing towards an improvement in economic activity. In addition, in some Asian countries the recovery in growth appears to be taking place somewhat earlier than expected. Notwithstanding individual downside risks in the countries I have just mentioned and a more general uncertainty regarding the recovery in Latin America, the world economy seems to be set for higher growth.","As regards economic activity in the euro area, some important data have been released since we last met. A first estimate by Eurostat for real GDP growth in the second quarter of 1999 points to slightly lower quarter-on-quarter growth compared with the first quarter of this year. However, these data do not appear to impinge on the view that there is an upturn in growth in the course of this year. In fact, industrial production data for the period up to July confirm the gradual improvement of recent months, and various survey data suggest that there was a further strengthening of output growth in the industrial sector over the summer months. Evidence for the consumer sector continues to point to broadly robust consumption growth. The outlook for a continuing improvement in overall activity therefore remains favourable.","In line with our expectations, the annual rate of change in the Harmonised Index of Consumer Prices (HICP) saw a further rise in August 1999 to 1.2%, up from 1.1% a month earlier. This upward movement was mainly caused by the ongoing increase in oil prices. Some counterweight came from a decline in unprocessed food prices and from a lower rate of increase in services prices. Largely reflecting this development in services prices, the HICP rate excluding more volatile components - namely energy and seasonal food - declined to 0.9% in August, having risen to 1.0% in July. Oil prices continued to increase further in September and, given the relatively short time of pass-through to consumer prices, expectations of further increases in the overall HICP rate in the coming months have become firmer.","In conclusion, monetary and credit developments indicate that continuous close attention must be given to upward risks to price stability. In the light of the medium-term orientation of the Eurosystem's monetary policy, the rising trend of M3 growth calls for great vigilance on the part of monetary policy. The recent increase in oil prices will continue to impose additional upward pressure on the HICP. Seen in isolation, the increase in energy prices should have only a temporary effect upon consumer price increases, but it is essential that this effect does not trigger wage claims which prove incompatible with price stability in the medium term.","Against the background of the medium-term outlook for a sustained acceleration in economic activity, decisive structural reform is warranted in order to prevent early upward pressure on prices. In fact, the Governing Council sees a strong case for enhancing structural reform in labour and product markets. The anticipation of an expected cyclical improvement should not lead to a weakening of efforts in this regard, but rather it should be used as a welcome opportunity to make convincing progress. This, together with continued wage moderation and fiscal adjustment in line with the Stability and Growth Pact, would greatly facilitate the monetary policy task of maintaining price stability in an environment of stronger growth.","Let me now give the floor to the Vice-President to introduce three additional topics which we discussed during our meeting:","In addition to reviewing the main monetary, financial and other economic indicators, the Governing Council formally adopted the Decision of the ECB on fraud prevention, according to which an independent Anti-Fraud Committee will be established to enforce an anti-fraud scheme within the ECB. The Committee will be composed of three independent persons of recognised standing and professional experience in the fields of central banking, justice and policing. Within the ECB, the Directorate Internal Audit is entrusted with the task of conducting all investigations relating to fraud prevention and detection. For the purpose of combating fraud, the Director of Internal Audit will report to the Anti-Fraud Committee. A co-operative relationship will be established with the European Anti-Fraud Office (OLAF).","As I already emphasised at the last press conference, the ECB shares the concerns of the European Parliament, the EU Council and the European Commission about the need to combat fraud and other activities detrimental to the financial interests of the Communities and the ECB. You will find further information relating to this Decision in the separate press release which has been issued today.","I should also like to mention that the Governing Council had a preliminary discussion on EU accession countries.","The accession of new members to the European Union is an area of development in which the Eurosystem will be increasingly involved. As you are well aware, 12 countries are official candidates for membership and negotiations have already started with a \"first wave\" of six countries. The negotiations with these countries are intensifying and the chapters on Economic and Monetary Union and on Free Movement of Capital have been opened this autumn.","Against this background, the Governing Council has already considered a number of issues related to EU enlargement in areas of relevance to the Eurosystem. Furthermore, the Governing Council has decided to organise a high-level seminar between the Eurosystem and the central banks of the 12 accession countries to be held in Helsinki on 10-12 November 1999. Following a number of bilateral contacts which the ECB has already had this year, the meeting in Helsinki will be attended by the governors of the central banks of the accession countries. It will provide the opportunity to strengthen the working relationships between the Eurosystem and the central banks of accession countries and to deepen the dialogue between the two sides.","Finally, the Governing Council approved 21 additional links established between securities settlement systems which can be used for the transfer of foreign collateral in the Eurosystem's monetary policy and intraday credit operations. With the approval of these links, the number of links which are currently eligible to be used by the Eurosystem increased from 26 to 47. You will find further information relating to this decision in the separate press release which has been issued today.","We are now at your disposal, should you have any questions.","Ladies and gentlemen,","the Vice-President and I are here to report on today's meeting of the Governing Council of the ECB.","The outcome of today's meeting was that the Governing Council has decided to increase the ECB interest rates. The forthcoming main refinancing operations of the Eurosystem will be conducted as fixed rate tenders at an interest rate of 3.0%, starting with the operation to be settled on 10 November 1999. This increase implies an upward adjustment of 50 basis points from the rate of 2.5% applied to previous such operations. In addition, the interest rate on the marginal lending facility will be increased from 3.5% to 4.0% and that on the deposit facility from 1.5% to 2.0%, both with effect from 5 November 1999.","Overall, on the basis of prospective developments, the Governing Council considers that today's decision will counter the upward trend of the balance of risks to price stability. This decision will therefore contribute to sustaining non-inflationary economic growth in the euro area over the medium term.","The main argument for raising the interest rates was the fact that since around the beginning of the summer the balance of risks to future price stability has gradually been moving towards the upside. In fact, the economic situation in spring 1999 had given rise to concern about downward risks and had led to a precautionary interest rate reduction by 50 basis points on 8 April 1999. However, the current economic environment is far more favourable. Moreover, several indicators, including monetary growth, suggest that there is ample liquidity in the euro area. Inflation rates are expected to increase gradually in the months ahead, mainly as a result of the increase in energy prices earlier this year working its way through to consumer prices. The latest data on industrial producer prices confirm this pattern. Over the medium term, however, it is important to prevent the availability of ample liquidity from translating into upward pressure on prices. In particular, an increase in interest rates now should help to counteract further liquidity growth over the medium term and contribute to maintaining inflation expectations safely below 2%.","With regard to the perception that an increase in interest rates now would endanger the resumption of economic growth, the Governing Council is of the opposite opinion. A timely rise in interest rates will avoid the need for a larger increase in interest rates later and, hence, will contribute to stronger growth over an extended period of time.","Concerning the size of an increase in interest rates, against the background of a fundamentally changed situation, the precautionary interest rate reduction made in April 1999 is no longer justified. Furthermore, today's move by 50 basis points appeared to be the best way in which to avoid uncertainties regarding the future course of monetary policy. In addition, such a move is expected to contribute to reducing any uncertainty premia potentially prevalent in financial markets and also to help to contain a possible increase in volatility in money markets towards the end of the year. Under these circumstances, the alternative of moving by less than 50 basis points now and examining the need for an additional step later on could potentially introduce unwarranted uncertainty for the period ahead.","Let me now provide you with more detailed information on monetary, financial and other economic developments, and thereby further explain the decisions taken today.","With regard to monetary developments in the euro area, the monetary data up to September 1999 reinforced the view that M3 growth is on a rising trend. The three-month average of the annual growth rates of M3, covering the period from July to September 1999, was 5.9%, which is almost 1½ percentage points above the reference value of 4½%. This deviation from the reference value has steadily increased during 1999. The strong growth of the most liquid components of M3 is particularly noteworthy, suggesting that the very low level of interest rates favoured the strong growth of monetary aggregates. The pick-up in economic activity is likely to have further stimulated M3 growth. Credit to the private sector also continued to expand rapidly in September 1999, at a rate in excess of 10%. The demand for loans remained strong throughout the first three quarters of 1999, supported in particular by the low level of bank lending rates and the ongoing economic recovery. Overall, these developments indicate a generous liquidity situation in the euro area.","Euro area financial market developments over the past few months confirm the general change in economic conditions and perspectives for the euro area by also anticipating an acceleration of economic growth. This is reflected in the rise in government bond yields and the associated pronounced steepening of the yield curve since spring 1999. Today's decision should contribute to firming financial market expectations of stronger growth without increasing inflationary pressures.","With regard to economic activity itself, current information indeed continues to support the view that there is an ongoing strengthening in the euro area. The outlook for the world economy remains positive; this mainly relates to the sustained growth of the US economy, but also to the apparent strengthening of the recoveries in South-East Asia and Japan. Most recent data releases for the euro area suggest an acceleration of real GDP growth rates in the second half of this year. This is indicated by confidence and survey data, as well as by production data for the industrial sector extending into the third quarter of the year. Therefore, the prospects for a continued improvement in output growth remain good.","Concerning consumer prices, in September 1999 the annual rate of change in the Harmonised Index of Consumer Prices (HICP) was 1.2%, that is to say unchanged from August 1999. On the one hand, upward pressures related to the surge in oil prices in recent months and to the rate of change in prices for seasonal food. On the other hand, in September the increases in both services prices and prices for non-energy industrial goods were more moderate than in August. Countervailing price movements of such a kind may possibly continue in the coming months, while expectations remain that there will be some overall upward movement in the HICP rate in the short term, which will mainly be linked to energy prices.","In conclusion, the downside risks to price stability have disappeared. Instead, monetary developments, together with the accumulating evidence of improved economic prospects, confirmed the view expressed earlier by the Governing Council that the balance of risks to future price stability has gradually moved towards the upside. This assessment argued in favour of adjusting the interest rates within the context of a monetary policy stance which is conducive to maintaining price stability over the medium term.","Containing inflationary expectations in a forward-looking manner is decisive for ensuring sustainable growth in GDP and employment. This would be greatly facilitated if individual member countries were to make convincing progress in the structural reform of the labour and product markets, which, over the medium term, would enhance the euro area's production potential and thereby curb upward pressure on prices as the recovery proceeds. Together with fiscal consolidation in the context of the Stability and Growth Pact and the necessary moderate wage developments, such reforms could make a crucial contribution towards transforming the current cyclical upswing into a process of longer-term non-inflationary growth.","In a press release dated 1 July 1999, the ECB indicated that an announcement would be made in November with regard to the decision on the public relations agency selected to prepare and execute a Europe-wide information campaign for the introduction of the euro banknotes and coins on 1 January 2002. In this regard, I am now pleased to announce that the Governing Council has decided to negotiate the contract with Publicis. Further information on this matter can be found in a separate press release which will be issued this afternoon.","Finally, I should like to draw your attention to the fact that the second meeting of the Governing Council to be held in December has been rescheduled. As announced yesterday, the meeting has been brought forward from Thursday, 16 December 1999, to Wednesday, 15 December 1999, in order to enable several Governing Council members to attend a first gathering of a new forum consisting of ministers of finance and central bank governors (the so-called \"G20\"), which is to be held in Berlin on 16 December 1999.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB, the latter of which was attended by Mr. Niinistö, President of the EU Council.","Let me first report that the Governing Council decided to confirm the reference value for monetary growth, namely an annual growth rate of 4½% for the broad aggregate M3. This decision was taken on the grounds that the components underlying the derivation of the first reference value in December 1998, namely the Eurosystem's definition of price stability and the assumptions for trend real GDP growth and the trend decline in M3 income velocity, have remained unchanged.","As before, the Governing Council will assess monetary developments in relation to the reference value on the basis of a three-month moving average of annual growth rates. The Governing Council has decided henceforth to review the reference value on a regular annual basis, with the next review to take place in December 2000.","Against this background, the Governing Council wishes to emphasise that the trend growth potential of the euro area could be considerably enhanced by structural reform in the labour and goods markets. The Eurosystem's monetary policy strategy would take such changes into account, as appropriate. The derivation of the reference value of 4½% is an expression of a medium-term-oriented approach. The generous liquidity situation in 1999 will have to be borne in mind.","The ECB will issue a press release today providing some background information on the review of the reference value carried out today by the Governing Council. The press release will also recall the role of the reference value within the Eurosystem's monetary policy strategy.","The Governing Council also conducted its regular review of the outlook for price developments and the risks to price stability in the euro area, this time including a review of the most recent forecasts and projections. After this examination, the interest rate on the main refinancing operations of the Eurosystem was left at 3.0% and the interest rates on the marginal lending facility and on the deposit facility were maintained at 4.0% and 2.0% respectively.","Allow me to outline the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","With regard to monetary developments in the euro area, the data up to October 1999 - which still refer to the period before our decision to raise interest rates - confirmed the picture of a generous liquidity situation in the euro area. The annual growth rate of M3 in October 1999 was 6.0%. This compares with 6.2% in the previous month. The three-month average of the annual growth rates of M3, covering the period from August to October 1999, was unchanged at 6.0%, and thus stood 1½ percentage points above the reference value of 4½%. The growth of the most liquid components of M3 remained very dynamic. In addition, the annual growth rate of credit to the private sector continued to exceed 10%. As we have noted on previous occasions, these monetary and credit developments are considered to have been driven mainly by the low level of interest rates, as well as by the pick-up in economic activity in the euro area.","The initial reaction of euro area financial markets to the Eurosystem's monetary policy move of last month was favourable. In particular, this was signalled by the continued decline in long-term government bond yields and the immediate substantial reduction in market uncertainty regarding the evolution of future long-term interest rates. Later in November, long-term bond yields in the euro area began to rise again gradually, in connection with developments in international bond markets and favourable expectations for world growth.","Indeed, the global economic outlook remains positive, and the view that the world economy is set for higher growth appears to be shared by the major international organisations. At the same time, the expectation that growth differentials between the main economic regions will narrow in the course of time is widespread. While real GDP growth in the United States is generally expected to ease, it is expected to accelerate in the euro area. Overall, relatively wide growth differentials between the major world economies will give way to a more balanced scenario, thereby underlining the potential for the euro to appreciate.","With regard to developments in economic activity in the euro area, the latest data confirm a strengthening of growth in the course of the second half of 1999. In particular, production growth in the industrial sector saw a further upturn in the third quarter and various survey data suggest that this will continue in the final quarter. All available projections indicate that this upward momentum will lead to an acceleration in real GDP growth, from around 2% this year to close to 3% in both 2000 and 2001.","Consumer price increases, as measured by the Harmonised Index of Consumer Prices (HICP), have recently resumed their upward trend, as expected. In October the annual rate of change in the overall HICP was 1.4%, up from 1.2% in September and August owing to higher price increases for food and non-energy industrial goods. The impact of higher oil prices on energy prices in the HICP, which had accounted for most of the upward pressure since June 1999, was countered in October by more moderate increases in other energy components. Some additional counterweight to the upward movement in goods prices came from a further moderation of increases in prices in the services sector. In general, the overall upward trend is expected to continue until early 2000 as a result of the increase in oil prices since spring 1999. Forecasts available suggest that price increases will nevertheless remain below 2% in the course of 2000 and 2001. However, the actual developments will very much depend on the behaviour of a number of factors, and in particular on wage developments remaining in line with price stability. In addition, our assessment has to take due account of prevailing uncertainties. On the upside, these relate to, inter alia, the behaviour of money and credit aggregates, the developments in oil prices and the path of the effective exchange rate, all of which are closely monitored with regard to their impact on price stability. On the downside, main factors are linked to the effects of deregulation and liberalisation.","In conclusion, the current monetary policy stance should ensure a sustainable expansion of non-inflationary economic activity in the euro area. In line with its monetary policy strategy, the Governing Council will remain vigilant with regard to any risks to price stability arising either from domestic or from external sources and act in a timely manner.","Let me now give the floor to the Vice-President to introduce some of the additional topics we discussed during our meetings.","The Governing Council today also took a decision on the subject of the minimum reserve system. As you may be aware, interbank liabilities are not subject to reserve requirements. In this respect, the ECB allows those credit institutions which cannot provide evidence of their interbank liabilities - in the form of debt securities issued with an agreed maturity of up to two years or money market paper - to apply a standardised deduction to the aforementioned liabilities in the computation of their reserve base. Since January 1999 this standardised deduction has been set at 10% for both types of securities. Today, following a review of new statistical evidence available, the Governing Council decided to increase the standardised deduction to 30%. This decision shall have effect as from the determination of the reserve requirement to be fulfilled in the maintenance period starting on 24 January 2000. A separate press release presenting this decision and some background information on standardised deductions from the reserve base will be issued to you here today.","The Governing Council today approved the ECB's budget for 2000, which gives the ECB the green light to recruit further staff needed to support the ongoing activities of the ECB. This will bring the ECB's staff to slightly over 1000; the number of staff employed to date stands at 750.","At its meeting on 18 November 1999 the Governing Council approved the publication of an update of the book on \"European Union balance of payments statistical methods\" (the \"B.o.p. Book\"). This important book documents the statistical methodologies applied in Member States in compiling balance of payments statistics and, as such, improves the transparency of the compilation of euro area statistics. This new version includes additional chapters on: (i) investment income; (ii) estimation methods, especially for goods, investment income and portfolio investment; (iii) financial derivatives; and (iv) the stocks compiled for international investment position statistics. The book was published on the ECB's Web site at 4 p.m. yesterday and will be available from the ECB in hard copy format during the course of next week.","Finally, let me inform you that the General Council discussed the monetary policy objectives, strategies and intentions of the non-participating EU central banks against the background set by the monetary policy of the Eurosystem. This is the second time that such an exercise has been undertaken since the ECB was established.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the ECB.","Let me first say that, as expected, the transition of the euro area financial markets to the year 2000 went smoothly. This positive outcome reflects the careful preparation of the banking and financial community as well as the comprehensive and flexible operational framework of the Eurosystem.","As you will be aware, the ECB took some precautionary measures to ensure against any problem in the transition to the year 2000, including the provision of sufficient liquidity in the money market during the period around the century date change. After the successful transition to the year 2000 there is no longer any need to extend the current situation of abundant liquidity. Therefore, the Eurosystem this morning conducted a liquidity-absorbing operation amounting to EUR 14.4 billion. The operation contributed to restoring more normal liquidity conditions.","The Governing Council today conducted its regular examination of the current outlook for price developments and the risks to price stability in the euro area. The interest rate on the main refinancing operations of the Eurosystem was left at 3.0% and the interest rates on the marginal lending facility and the deposit facility were maintained at 4.0% and 2.0% respectively.","Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","Let me start with the latest monetary developments in the euro area. The three-month average of the annual growth rates of M3, covering the period from September to November 1999, was 6.0%, that is to say slightly higher than the figure of 5.9% recorded for the three-month period from August to October 1999. Accordingly, it remained around 1½ percentage points above the reference value of 4½%. Overall, current liquidity conditions in the euro area continue to be generous. This is also confirmed by the continued strong growth of loans to the private sector (10.1% in November, compared with 9.9% in October 1999).","Moving to the euro area financial markets, as we have already noted, it is clear that they were able to weather the century date change without encountering any major problems. The associated risk premium in short-term interest rates had already declined in the last week of December 1999 and had completely disappeared by the time the markets opened on 3 January 2000. Long-term government bond yields have climbed by around 30 basis points since end-November, partly in tandem with bond yields in the United States, but also in response to a more optimistic outlook for the euro area economy.","At today's meeting the Governing Council also focused on the economic outlook. In particular, note was taken of the fact that activity in the world economy is continuing to gain momentum as projections for world output growth have been revised upwards recently. This mainly reflects the sustained and high level of growth of the US economy, but also the broad upturn in growth in other industrialised countries and the strong recovery in Asian emerging market economies.","The latest developments relating to economic activity in the euro area have contributed to the improved outlook for the global economy and are consistent with the expectation that growth differentials between the main economic regions will narrow. A recent estimate for euro area real GDP growth in the third quarter of 1999 clearly confirmed the widely expected upturn in growth. Survey data for the industrial sector point to continued solid output growth in the final quarter of last year. In addition, private consumption growth should benefit further from continued employment growth and a high level of consumer confidence.","As regards consumer price developments, the Harmonised Index of Consumer Prices (HICP) increased further in November 1999. To a large extent the upward movement in November reflects higher price increases for energy and unprocessed food, which is similar to the situation observed in previous months. The annual rate of change in the overall HICP was 1.6%, following an increase of 1.4% in October.","When discussing the risks to price stability, the Governing Council recognised that, in the short term, consumer price developments are expected to remain subject to further upward pressure. This is mainly due to higher oil prices, but also to developments in the effective exchange rate of the euro and to a gradual unwinding of the earlier downward movements in food prices. The combined effect of these factors is expected to lead to a peak in the overall HICP increase in early 2000 and to lessen thereafter. Therefore, taken by itself, the upward movement in the rate of increase in the HICP expected for early 2000 should not give undue cause for concern. However, in terms of the outlook for price stability in the medium term, it is essential that the immediate upward movement does not translate into general inflationary pressures and, in particular, that it does not trigger second round effects such as excessive wage claims. Indeed, stability-oriented behaviour is urgently required.","In conclusion, the available indicators confirm our previous analysis and assessment on the overall situation as regards the risks to price stability. Against this background, we remain both confident and vigilant.","Let me now give the floor to the Vice-President to introduce some of the additional topics.","I should like to draw your attention to two items not directly linked to today's meeting of the Governing Council.","The first one deals with one aspect of the ECB's monetary policy competence. Pursuant to the Treaty (Article 106 (2)) the ECB has the exclusive right to approve the volume of coins issued by the euro area Member States. To this end, the Governing Council adopted, in late December, a Decision on the volume of coin issuance in 2000. This Decision will be published in the Official Journal of the European Communities shortly.","The second item relates to the Executive Board's decision to adjust the ECB's organisational structure according to the needs of a still growing institution on the one hand and to better accommodate the challenges ahead on the other. Among the changes you will find an upgrading of the Directorate Statistics to a Directorate General, in order to enhance its role as provider of monetary and financial statistics to the general public, as well as a restructuring of the Directorate General Economics. An updated organisational chart is available in the room this afternoon.","We are now at your disposal, should you have any questions.","Ladies and gentlemen,","the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the ECB.","At today's meeting the Governing Council decided to increase the ECB interest rates by 25 basis points. As a consequence, the forthcoming main refinancing operations of the Eurosystem will be conducted as fixed rate tenders at an interest rate of 3.25%, starting with the operation to be settled on 9 February 2000. In addition, the interest rate on the marginal lending facility will be increased from 4.0% to 4.25% and that on the deposit facility from 2.0% to 2.25%, both with effect from 4 February 2000.","These decisions were taken on the basis of an assessment of the risks to price stability in the medium term in the context of the Eurosystem's monetary policy strategy. Considering the first pillar of this strategy, both monetary and credit growth continue to signal generous liquidity conditions. Monetary growth has consistently been above the reference value and credit to the private sector is continuing to grow at more than 10%. These developments are indicative of upside risks to price stability in the medium term. As for the second pillar of the monetary policy strategy, price and cost increases - including oil and non-energy commodity prices as well as producer prices - have been larger and more protracted than foreseen earlier and hence indicate risks of \"second round\" effects. Such risks, which are of a more enduring nature, are further increased by the fact that the international environment is showing continuous signs of improvement and the prospects of a cyclical upswing in the euro area are very strong. Indeed, internal and external factors reinforce one another and thereby contribute to intensifying the growth of the real GDP of the euro area. The depreciation of the euro which we have witnessed is contributing to increases in import prices.","Timely and appropriate monetary policy adjustments should ensure that these risks are kept under control, so that risk premia in financial markets will be diminished. The Governing Council's determination to counter threats of inflation should assure wage negotiators that the prospects for price stability remain favourable. In fact, it will be important to ensure that wage settlements themselves do not constitute a threat to price stability in the medium term.","Allow me to give you a more detailed overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","Starting with the first pillar, there has been an upward movement in most recent monetary developments in the euro area. Base effects have largely contributed to the fact that the three-month average of the annual growth rate of M3 - covering the period from October to December 1999 - rose to 6.1%, after having stood at 6.0% in the three-month period ending in November 1999. At 10.5%, the annual growth rate of credit to the private sector continued to be high in December 1999. Considering the prolonged deviation of M3 growth from the reference value of 4 1/2% throughout 1999, as well as the ongoing strong expansion of credit, monetary and credit developments observed remain an important factor contributing to the upside risks to price stability.","Turning to the second pillar, long-term nominal interest rates signal increased expectations of a lasting upswing in the euro area economy. Between the end of December 1999 and the end of January 2000 ten-year government bond yields in the euro area increased further to reach the highest level observed since late 1997.","Developments in the exchange rate of the euro are becoming a cause for concern with regard to future price stability. At the end of January the nominal effective exchange rate of the euro stood approximately 11 1/2% below its level in the first quarter of 1999. Given both the magnitude and the duration of this development, import prices can be expected to rise further, thereby increasing the risk that upward pressures on consumer price inflation might materialise in the medium term.","It is all the more important to take such risks into account given that the outlook for the world economy has improved further. There are increasing signs that the upturn in world growth has become more broadly based across economic areas. In addition to the US economy continuing to enjoy robust growth, activity is also accelerating in other industrialised countries and the recovery is strong in both Asian and Latin American emerging market economies.","Euro area growth developments are in line with global trends. Following the acceleration in real GDP growth from the second to the third quarter of 1999, economic activity in the euro area can also be expected to have seen a strong expansion in the last quarter of 1999. Inter alia, the high level of industrial and consumer confidence reached in the last quarter of 1999 and the prospect of ongoing employment growth and further falling unemployment, as reflected in most recent data, all point to ongoing improvements.","With regard to consumer price developments, the rate of inflation - as measured by increases in the Harmonised Index of Consumer Prices (HICP) - has moved up further. The rise in the annual rate of change in the overall HICP from 1.5% in November to 1.7% in December 1999 was almost entirely due to an annual increase in energy prices. Our expectation is that we shall see higher inflation rates in the next few months. Inflation rates are now approaching higher levels than expected earlier, and larger and more protracted commodity and producer price increases are heightening the risk of second round effects. Against this background it is crucial for wage negotiators to be able to rely on the maintenance of price stability in the medium term.","In conclusion, it is the responsibility of the Governing Council to maintain price stability, thereby contributing to ensuring sustainable growth in the euro area. In order to maintain price stability, monetary policy needs to act in a forward-looking manner, counteracting external and domestic risks in a timely fashion. Growth in the euro area is now robust and, in order to maintain favourable conditions for a lasting economic expansion, social partners will need to keep wage increases consistent with price stability, as well as compatible with continued growth in employment. Governments will have to enhance the structural reform process in order to strengthen the economy in a durable manner. Such reforms will not only make a great contribution to the euro area remaining attractive for domestic investors, but will also contribute to increasing its attractiveness for investors located abroad. Overall, consistently acting in line with these responsibilities appears to be most conducive to maintaining price stability at the domestic level and to ensuring robust growth. This will lead to a strengthening of the euro. Indeed, a strong economy goes along with a strong currency.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB.","The Governing Council conducted its regular examination of the outlook for price developments in the euro area. After reviewing the evidence available from both the first and the second pillar of the monetary policy strategy of the Eurosystem, the Governing Council decided to maintain the interest rate on the main refinancing operations of the Eurosystem at 3.25% and the interest rate on the marginal lending facility and that on the deposit facility at 4.25% and 2.25% respectively, i.e. at the levels determined a month ago. The Governing Council also concluded that the balance of risks to price stability in the medium term remains on the upside. These upside risks will need to be monitored and assessed continuously in order to ensure that timely action can be taken, if and when required.","The main elements of our assessment of the latest information on monetary, financial market and other economic developments are as follows.","Starting with the monetary indicators covered under the first pillar of the monetary policy strategy, the three-month average of the annual growth rates of M3 for the period from November 1999 to January 2000 was 5.7%, compared with 6.0% in the last quarter of 1999. The reduction was determined by a base effect, since the monthly increase in M3 in January 1999 was exceptionally strong, reflecting the special environment at the start of Stage Three of Economic and Monetary Union. At the same time, the annual growth rate of credit to the private sector remained high, at 9.5% in January 2000. Overall, the prolonged deviation of M3 growth from the reference value of 4½%, especially when seen in conjunction with the dynamic growth of credit, indicates that liquidity conditions in the euro area remain generous.","With regard to the second pillar, as usual, the Governing Council examined a broad range of indicators. Starting with long-term nominal interest rates, there was little change in the course of February. The yield curve remained relatively steep, thus indicating expectations of strong economic growth in the period ahead.","Such expectations are partly based on the favourable outlook for the world economy. A key element underlying this positive outlook is the fact that the US economy is continuing to grow at a high rate, but the strong recovery and the acceleration of growth in other areas also support this view. The strongest level of performance is currently being recorded in emerging market economies in South-East Asia, while the broad outlook in Japan remains uncertain.","There is also further evidence that economic activity in the euro area continued to expand strongly after the third quarter of last year. While euro area estimates for the fourth quarter of 1999 are not yet available, data for individual Member States point to continued robust output growth. In addition, area-wide industrial confidence increased further around the turn of the year and consumer confidence remained at the high level reached in the last two months of 1999. The cyclical upswing should extend well into 2000 and continue thereafter. This is also confirmed by available forecasts, which point to real GDP growth of slightly over 3% in 2000. As for 2001, the economic expansion in the euro area is generally expected to continue at a similar pace.","Developments in the exchange rate of the euro, which do not reflect the underlying strength of the euro area economy, remain a cause for concern. Their upward impact on import prices is having a negative effect on the price climate and is thereby increasing the risks to price stability in the medium term.","With regard to most recent developments in consumer price inflation, as measured by annual increases in the Harmonised Index of Consumer Prices (HICP), the upward movement has continued. In January 2000 the annual rate of HICP inflation was 2.0%, up from 1.7% in December 1999. As in earlier months, the latest upward movement is the result of the increase in energy prices, which, on an annual basis, reached 12.0% in January. Excluding the more volatile components, namely energy and seasonal food, HICP inflation in January increased slightly to 1.1% on account of somewhat higher price increases for non-energy industrial goods.","While it is likely that annual inflation rates will fall again in the course of 2000, owing to base effects related to the price of oil, monetary policy-makers need to look beyond developments over the next few months, i.e. policy will need to focus on the risks to price stability in the medium term. Indeed, whereas most forecasts still point to average inflation of below 2% in 2000 and 2001, they are based on rather favourable assumptions and generally seem to imply a pattern which is characterised first by decreasing rates of inflation in the course of this year and then by more fundamental upward tendencies later on. Against this background, the Governing Council concluded that vigilance is required and pointed to several factors. First, developments in monetary and credit aggregates will need to be analysed continuously in order to assess upward risks to price stability. Second, in view of the improving economic conditions, the potential spillover of large and protracted increases in import and producer prices into consumer prices will need to be assessed carefully. In this context, developments in the exchange rate and in oil prices will play a major role.","It will be essential, both for maintaining price stability and for reducing the high level of unemployment, that wage settlements remain moderate and do not themselves contribute to inflation expectations, which would also endanger the sustainability of the current upswing. Fiscal policies can make a substantive contribution to maintaining favourable economic conditions by using the current upswing as an excellent opportunity to proceed swiftly towards fulfilling the objectives of the Stability and Growth Pact. Economic conditions and perspectives in the euro area appear to be better at present than at any time in the past decade. Growth is strong, employment is expected to increase further and the still very high level of unemployment should continue to fall. Remaining vigilant to counter upside risks to price stability and pursuing structural reform is the foundation for a sustained period of strong economic growth and a lasting process of job creation.","Finally, I should like to draw your attention to two items not directly linked to today's meeting of the Governing Council.","First, I should like to inform you that on 30 March 2000 the Governing Council will meet for the first time outside Frankfurt, namely in Madrid. The meeting will be followed by a press conference. It is our intention that Governing Council meetings will be held in other euro area Member States twice a year. In the second half of this year it is envisaged that the Governing Council will meet in Paris.","Second, on 2 and 3 November 2000 the ECB will hold its first Central Banking Conference. The topic of the conference will be \"Why price stability?\" and it will take place in Frankfurt. The ECB's Central Banking Conference, which will be organised biennially, will bring together invited participants from central banks, international and European institutions, academia and the press. As of today, regularly updated information, including a preliminary programme, will be provided on the ECB's Web site. The final programme for the conference and all the papers, comments and a summary of the discussions will be made available on the ECB's Web site in due course.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, today, the Governing Council of the ECB met for the first time outside Frankfurt. Therefore, let me first of all thank our host, Governor Rojo, for inviting us to meet in Madrid and for the generous hospitality offered to us. The Vice-President and I will report on the outcome of today's meeting of the Governing Council.","I should like to take the opportunity of this special meeting to take stock of where we stand 15 months after the start of Monetary Union. In January 1999 the euro was successfully launched as the single currency for 11 Member States of the EU. As a result of very careful conceptual and technical preparations, both the monetary policy-making process and the implementation of monetary policy have functioned efficiently right from the start.","The challenges involved in setting up a central bank for a currency area as large as the euro area have been enormous. The Eurosystem - which comprises the European Central Bank and the 11 national central banks of the countries which have adopted the euro - has met these challenges with success. This would not have been possible without a strong willingness to co-operate on the part of the actors involved. I should like to take this opportunity once again to thank all the members of the Governing Council and the staff of the Eurosystem for this.","From the start, we had extremely productive and open discussions in the Governing Council on monetary policy issues. In this respect, our monetary policy strategy has provided a very useful framework within which to organise our thinking. In our discussions there has always been a clear understanding, based on the Treaty, that the single monetary policy can only focus on maintaining price stability in the euro area as a whole. This is based on the simple fact that in a monetary union, there is only one monetary policy, and this must be directed to a single objective. As laid down in the Treaty, each member of the Governing Council is therefore well aware that he or she is not a representative of a country or central bank but acts in a personal capacity in deciding the appropriate conduct of monetary policy for the euro area as a whole.","The move to the single currency and the introduction of the euro were based on a degree of convergence towards price stability in participating countries that few observers would have predicted some years ago. In 1999 the average rate of consumer price increases in the euro area as a whole was among the lowest recorded since the Second World War and, at 1.1%, remained fully consistent with price stability. At the same time, Monetary Union does not mean perfect identity of economic conditions in all parts of the euro area. The experience of all larger currency areas shows that some differences in regional price developments and also in regional output growth may exist.","As differences in national or regional developments cannot be addressed by the Eurosystem, they require, whenever necessary, country-specific responses. This means, in particular, responsible national wage settlements and appropriate national fiscal policies aimed at counteracting specific national problems. In addition, reforms addressing rigidities in labour and product markets and aiming at enhancing labour and capital mobility are the tools to ensure that market mechanisms will play an increasingly important role in limiting the scope for divergent developments in the euro area.","The single monetary policy offers a great opportunity to maintain price stability in the euro area and to create the conditions needed for sustained economic growth. Currently, the prospects for strong economic growth in the euro area are very favourable - indeed, more favourable than they have been for many years. Economic activity in the euro area strengthened markedly in the second half of 1999 and this upswing is expected to continue through 2000 and beyond. Available forecasts point to real GDP growth of slightly over 3% in 2000 and 2001, reflecting both the favourable external environment and strong domestic demand. In line with this positive outlook, employment is expected to increase further and unemployment to come down in this context.","At this juncture, it remains, indeed, important that the expected improvements in economic conditions and labour market prospects are not jeopardised by inappropriate wage settlements. In fact, wage moderation, combined with structural reforms in the labour markets, would help both to contain inflation in the euro area and to lead to further progress with employment creation.","The contribution of monetary policy to strong and sustained economic growth is to ensure that price stability in the euro area will be maintained in the years to come. The Governing Council has, over recent months, raised ECB interest rates in three steps, in total by 1 percentage point, as a response to signals from both pillars of the Eurosystem's monetary policy strategy that upward risks to price stability were increasing.","Since the last meeting of the Governing Council, which was held on 16 March 2000, the main new data released relate to monetary developments and HICP inflation in the euro area. With regard to monetary developments, the annual growth rate of M3 in February 2000 was 6.2%, implying a small increase in the three-month moving average of annual M3 growth, to 5.9% for the period from December 1999 to February 2000. The annual rate of change in the HICP in the euro area rose from 1.9% in January 2000 to 2.0% in February 2000, reflecting the anticipated upward pressure on consumer prices stemming from oil price and exchange rate developments.","In its review of the economic and monetary situation, the Governing Council also considered the recent developments in the exchange rate of the euro. Such developments need to be carefully assessed in the framework of the Eurosystem's monetary policy strategy. The Governing Council regards the present level of the euro as not reflecting the significant recent improvements in the outlook for the euro area economy.","At today's meeting the Governing Council decided to leave ECB interest rates unchanged. We shall, however, continue to be vigilant in order to be in a position, if needed, to counter inflationary pressure in a timely manner.","There remain, however, also challenges for other economic policies in the euro area.","As regards fiscal policies, the current upswing provides, for many countries, a good opportunity to comply more quickly with the objectives of the Stability and Growth Pact. This will free up resources for private initiatives and will, over time, contribute to increasing the growth potential of the euro area.","At this juncture, probably the greatest challenge for the euro area lies in speeding up structural reform in order to reduce the high level of structural unemployment. In this respect, the Eurosystem strongly supports the conclusions of the European Council in Lisbon and calls for their timely implementation. Furthering structural reform is the key to a lasting process of job creation and a sustained period of strong economic expansion.","Let me now give the floor to the Vice-President to present some of the additional topics discussed today by the Governing Council.","I should like to draw your attention to the following two items: first, the international financial architecture, an issue which was discussed in preparation for the forthcoming IMF Spring Meetings in Washington, D.C., and, second, the ECB's information campaign for the introduction of the euro banknotes and coins.","Let me start with the Governing Council's deliberations in relation to the current discussion on the international financial architecture, for which the President was mandated to convey the Governing Council's views to the President of the ECOFIN Council. Through its representation in all-relevant international institutions and fora, the Eurosystem has been able to participate actively in ongoing discussions over the past year.","The Eurosystem actively supports those efforts made by various institutions and fora - such as the IMF, the World Bank, the Financial Stability Forum and the Basel Committee for Banking Supervision - to enhance transparency and to improve the soundness both of financial systems and of regulatory and supervisory frameworks.","Owing to the fact that unsustainable exchange rate regimes were a factor behind financial crises of previous years, recent discussions have focused in particular on the choice of appropriate exchange rate arrangements. The Governing Council is of the view that such a choice should not be confined to alternative solutions of either a hard peg or free floating. Intermediate regimes, such as adjustable pegs, may suit the needs of emerging market economies, depending on their specific domestic and external conditions.","Refocusing the role of the IMF has been central to most recent reform proposals. The Governing Council is of the view that strengthening the key responsibilities of the IMF, namely further enhancing its credibility as a policy adviser and provider of financial assistance to members facing a loss of market confidence, will make an important contribution to international monetary stability. As regards crisis management, the Eurosystem is looking forward to seeing further progress in the complex but crucial area of ensuring private sector involvement in crisis prevention and resolution.","Second, the Governing Council approved the overall framework for the EURO 2002 information campaign - a Europe-wide campaign intended to familiarise citizens with the euro banknotes and coins.","The main objectives of the campaign are to help citizens:","to recognise the euro banknotes and coins and, in particular, their security features,","to familiarise themselves with the different (and, in many cases, new) denominations of the euro banknotes and coins, and","to inform themselves about the means by which the euro banknotes and coins will be introduced on 1 January 2002.","The strategy behind the ECB's campaign is based on the concept of co-operation with \"multipliers\", such as banks, retailers and their associations, as well as educational institutions and governmental authorities, at both a European and a national level. The campaign will be conducted in two main phases. In the first phase, which is about to start, the \"multipliers\" will be approached in order to prepare their own activities with regard to training and the provision of information. In the second phase, scheduled for the second half of 2001, the general public will actively be informed by means of a centralised mass media campaign to ensure the smooth changeover to the euro banknotes and coins. The main communication tools will be television spots and widely distributed printed matter supported by radio spots and both billboard and press advertisements. I should like to stress that due account will be taken of the specific needs of the various groups of vulnerable citizens in the conduct of the campaign. Close co-ordination with the EU institutions and the Member States will ensure the provision of consistent information.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council today conducted its regular examination of the outlook for price developments and the risks to price stability in the euro area. Following this review, the Governing Council decided to maintain the interest rate on the main refinancing operations of the Eurosystem at 3.5% and to keep the interest rates on the marginal lending facility and on the deposit facility at 4.5% and 2.5% respectively.","Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","Let me start with information in relation to the first pillar of our monetary policy strategy. No new monetary data have been released since the last meeting of the Governing Council, which was held in Madrid on 30 March 2000. The annual growth rate of M3 in February 2000 was 6.2%. This implied a small increase in the three-month moving average of annual M3 growth, to 5.9%, from 5.8% recorded for the three-month period from November 1999 to January 2000. M3 growth thus remained around 1 1/2 percentage points above the reference value of 4 1/2%. The picture of generous liquidity conditions in the euro area is also confirmed by the continued strong annual rate of growth of loans to the private sector, which stood at 10.5% in February.","With regard to economic developments in the euro area, following strong growth of real GDP in the second half of 1999, most recent production and survey data suggest that the economic expansion also remained strong in early 2000. In particular, both consumer and industrial confidence have now reached levels which are close to the highest observed since the mid-1980s. This picture of strong growth of domestic demand supports the favourable outlook for economic growth in the euro area as depicted in recent forecasts. The positive prospects for euro area activity also benefit from the strong cyclical upswing in the world economy, which has become more broadly based across industrial and emerging economies and which is expected to continue in the years to come.","The exchange rate of the euro does not reflect the ongoing improvement in domestic fundamentals in the euro area economy. In nominal effective terms, the euro was around 4% lower in mid-April than at the beginning of the year and approximately 14% below its level in the first quarter of last year. Until reversed, this development will put upward pressure on import prices and will continue to affect the risks for price stability in the euro area.","As I have already noted on previous occasions, the rise in the Harmonised Index of Consumer Prices (HICP) which we have observed over recent months stems, to a large extent, from the combined effects of both oil price and exchange rate developments. The annual rate of change in the HICP rose to 2.0% in February 2000, from 1.9% in the previous month. The rate of inflation on producer prices also rose further in February 2000, mainly in connection with rising prices for intermediate goods.","In the course of the past few weeks oil prices have declined. This has been in line with the assumption underlying currently available economic forecasts, namely that the oil price increases which we observed until March will partially unwind in the course of the year. At the same time, it is most likely that the complete upward impact on consumer prices via import and producer prices of the oil price and exchange rate developments in recent months has not yet materialised. Against this background, the possibility cannot be ruled out that the figure for annual HICP inflation will slightly exceed 2% in the spring of this year, before falling back to lower levels.","What matters for monetary policy, however, are the trends underlying the outlook for price stability in the medium term. In this context, the Governing Council again stressed the need for the continuation of wage moderation in the euro area. As noted earlier, monetary and credit developments confirm that liquidity in the euro area is ample. Developments in the exchange rate of the euro also remain a cause for concern with regard to future price stability. In the light of the favourable prospects for strong economic growth, the impact of these developments on inflationary pressures will need to be monitored closely.","The Eurosystem will remain vigilant in assessing upside risks to price stability and will take appropriate action if and when required. A forward-looking monetary policy which responds to risks to price stability before they materialise will avoid the need for a costly stabilisation of inflation at a later stage. Such a forward-looking approach is clearly also the best contribution monetary policy can make to ensuring the sustainability of the process of economic growth.","This phase of economic growth in the euro area will offer a great opportunity to make further progress in bringing down the high level of unemployment in the euro area. An important means of achieving this will be continued wage moderation, which, in turn, will also help to contain inflationary pressure. This notwithstanding, as I have stressed repeatedly in the past, the key to achieving a sustainable reduction in the level of unemployment will be structural reforms in the euro area, including a lowering of the tax burden and an improvement in the fiscal expenditure structure. Only when labour markets are more flexible and competitive pressures are high will it be possible to prevent bottlenecks from triggering upward pressures on prices at a relatively early stage of an economic recovery.","Fiscal policy has to play its part in this context. The favourable economic prospects will lead to higher tax revenues. In line with the Stability and Growth Pact, it is not opportune to use these extra revenues for higher spending. Now is the time to speed up fiscal consolidation in order to help to reduce further the debt-to-GDP ratios in the Community and to approach more quickly fiscal budgetary positions in surplus or balance.","Let me now give the floor to the Vice-President to present some of the additional topics discussed today by the Governing Council.","I should like to draw your attention to two items: the first reflects the Eurosystem's growing involvement in the EU accession process and relates to the Governing Council's position with regard to the appropriateness of euro-based currency board arrangements (CBAs) as a strategy to be used by accession countries with regard to adopting the euro; the second relates to a further enhancement of the ECB's transparency policy.","Let me start with the Governing Council's deliberations on CBAs. We concluded that the appropriateness of CBAs will be assessed on a case-by-case basis. Therefore, the Governing Council neither encourages nor discourages the adoption of euro-based CBAs. In any event, such arrangements cannot be regarded as a substitute for two years' participation in ERM II. Accession countries which have operated a euro-based CBA deemed to be sustainable might not be required to go through a double regime shift in their strategies to adopt the euro. Thus such countries may participate in ERM II with a CBA as a unilateral commitment augmenting the discipline within ERM II. However, it should be clearly understood that a common accord would have to be reached on the central parity against the euro.","With a view to further enhancing the ECB's transparency policy, the Governing Council has today decided to publish all non-confidential legal instruments governing the relationship between the ECB and the euro area national central banks in the Official Journal of the European Communities. The release of these legal instruments in all 11 official Community languages will give interested members of the public an opportunity to gain first-hand knowledge about the internal operation of the Eurosystem. The members of the Governing Council regard the transparency of the decision-making process as an appropriate means by which to strengthen the democratic nature of the institution and to increase the public's confidence in its administration. This decision is in line with the general policy towards increased transparency in the decision-making process currently being pursued at the Community level.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted its regular examination of the outlook for price developments and the risks to price stability in the euro area. The interest rate on the main refinancing operations of the Eurosystem was left at 3.75% and the interest rates on the marginal lending facility and the deposit facility were maintained at 4.75% and 2.75% respectively.","Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","In March 2000 the three-month average of the annual growth rates of M3 - covering the period from January to March 2000 - rose to 6.0%, compared with 5.9% in the period from December 1999 to February 2000. Consequently, M3 growth remained 1 1/2 percentage points above the reference value of 4 1/2%. The annual rate of increase in credit to the private sector also rose, to 10.9%, compared with 10.4% in the previous month. These figures confirm our earlier assessment, namely that liquidity continued to be ample in the euro area in early 2000.","As regards economic developments, recent information confirms the very positive outlook for strong growth in the euro area. All available indicators and forecasts seem to point to a phase of continued economic growth, following the upturn observed in the second half of 1999. Industrial production rebounded in February and this, together with further increases in capacity utilisation and industrial confidence up to April, suggests an ongoing strengthening in industrial activity. In addition, with consumer confidence remaining at an all-time high and unemployment continuing to decline, the recent strength of private consumption should be sustained. Looking at the world economy, the upturn in growth has become more broadly based, pertaining to both industrial and emerging economies, and most forecasts indicate that current growth differentials between economic areas are in the course of narrowing.","Notwithstanding the strong growth performance and favourable outlook for euro area economic activity, the exchange rate of the euro has continued to decline over the past few weeks and has thereby moved further out of line with the increasingly positive economic fundamentals of the euro area, as well as international balance of payments positions.","In March consumer price inflation, as measured by increases in the Harmonised Index of Consumer Prices (HICP), rose to 2.1%, up from 2.0% in the previous month. This was due to developments in both oil prices and exchange rates. A moderation in 12-month inflation rates can be expected in the course of 2000, reflecting the decline in oil prices from around mid-March and base effects dampening the increase in inflation rates compared with the same month a year earlier. However, what matters for monetary policy are the trends underlying the outlook for price stability in the medium term. In this respect, the depreciation of the exchange rate of the euro, until it is reversed, will increase the risks to price stability in the medium term. These risks have to be taken seriously in the light of the current strong upswing. Other important factors which will have a crucial impact on the outlook for price stability over the medium term are a continuation of currently moderate wage developments, a further fiscal consolidation in line with the Stability and Growth Pact and the further implementation of structural reforms in product and labour markets.","The Governing Council would like its message to be very clear: price stability in the euro area will be maintained and, as I already said last week, the citizens of Europe can be confident that their savings and pensions will keep their value over time. Price stability will help to turn the current upswing into a long period of high economic growth and falling unemployment, and it will strengthen the currency.","Finally, I should like to inform you about two items related to the field of statistics. First, the Governing Council has decided in the near future to publish a comprehensive description of the statistical information collected and compiled by the ESCB, mainly in the areas of money and banking statistics, securities issues, interest rates, balance of payments and financial accounts, with pointers to possible developments in these areas. Second, the Governing Council has adopted a revised Guideline and a revised Recommendation on \"the statistical reporting requirements of the ECB in the field of balance of payments statistics, the international reserves template and international investment position statistics\". Both the Guideline and the Recommendation will be published in the Official Journal of the European Communities in due course.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB.","The Governing Council took the following monetary policy decisions:","The interest rate on the main refinancing operations of the Eurosystem will be raised by 0.50 percentage point to 4.25% and applied in the two operations (which will be conducted as fixed rate tenders) to be settled on 15 and 21 June 2000.","The interest rate on the marginal lending facility will be raised by 0.50 percentage point to 5.25%, with effect from 9 June 2000.","The interest rate on the deposit facility will be raised by 0.50 percentage point to 3.25%, with effect from 9 June 2000.","Starting from the operation to be settled on 28 June 2000, the main refinancing operations of the Eurosystem will be conducted as variable rate tenders, applying the multiple rate auction procedure. The Governing Council has decided to set a minimum bid rate for these operations equal to 4.25%. This is the same rate as that which will prevail for the two fixed rate tenders to be implemented following today's decision.","Let me start by commenting on the reasons for this rise in interest rates, before the Vice-President says a few words about the move to a variable rate tender procedure.","Over recent months the risks to price stability in the medium term have clearly continued to increase. This assessment has been supported by the information from both the first pillar and the second pillar of the Eurosystem's monetary policy strategy. With regard to the first pillar, strong growth of money and credit throughout 1999 and the pronounced expansion of money and credit aggregates over the first four months of 2000 have strengthened the view that liquidity conditions are ample. As for the second pillar, in a phase of strong growth upward risks to price stability currently relate mainly to the spillover of rising import prices to consumer prices, owing both to the lagged effects of the exchange rate depreciation and to rising oil prices. In fact, most inflation forecasts have been revised upwards over recent months. This is a matter of concern. Today's increase in ECB interest rates is a decisive step to address these upside risks to price stability and it will contribute to the continuation of non-inflationary growth in the euro area.","Allow me to give you a more detailed overview of the main elements of our assessment of monetary, financial market and other economic developments.","Let me start by addressing the latest monetary developments in the euro area. The three-month average of the annual growth rates of M3, covering the period from February to April 2000, was 6.3%, i.e. significantly above the reference value of 4 1/2%. Thus, the most recent M3 data confirm that the liquidity situation in the euro area continues to be very generous. M3 growth deviated from the reference value in 1999 and growth rates increased further in early 2000. This picture of very generous liquidity conditions in the euro area is complemented by the rapid expansion of credit to the private sector, which remained close to or above 10% throughout 1999 and exceeded 11% in April 2000. Taken together, such developments would clearly point to upside risks to price stability over the medium term, if not counteracted in time.","Turning to the second pillar, we have to consider economic and financial market developments as well as consumer price developments.","Looking at economic developments, the outlook for growth in the euro area has improved markedly over the past few months. Overall, indicators for economic activity released since the end of last year point to continued strong growth, following the upturn in real GDP growth in the second half of 1999. All the forecasts currently available from major international organisations and private institutions now project real GDP growth to be above 3% this year and next year, which is significantly higher than expected at the end of last year. This positive outlook reflects favourable domestic and external conditions for growth. On the domestic side, expansion of private consumption and investment should benefit, in particular, from ongoing employment growth and higher rates of capacity utilisation. Domestic demand is also supported by high business and consumer confidence. On the external side, the upturn of growth in the world economy appears to be stronger, faster and more broadly based than was expected at the end of last year. Hence, euro area exports should remain strong.","Financial market developments also support the view that the economic expansion in the euro area is set to continue at a fast pace. Moreover, the exchange rate of the euro appreciated at the end of May and in the first few days of June, also reflecting expectations that robust economic growth will continue in the euro area. Notwithstanding the recent appreciation of the euro, the extent and duration of its previous depreciation will still exert upward pressure on consumer prices.","Against this background, the outlook for consumer price developments had become less favourable prior to today's meeting. In April 2000 inflation - as measured by the Harmonised Index of Consumer Prices (HICP) - was 1.9%, following 2.1% in March. In the immediate future, the strong rise in oil prices in May 2000 is pointing to renewed short-term upward pressures. Looking further ahead, all available forecasts for consumer price inflation for this year and next are now higher than they were at the end of 1999. Current projections of a rate of inflation of around 2% in 2000 and 2001 are clear warning signals.","In conclusion, with today's decisions the Governing Council has acted in a forward-looking manner in order to contribute to the maintenance of favourable conditions for a lasting, non-inflationary economic expansion. This should help other economic actors to rely firmly on the maintenance of price stability in the medium term. They are also called upon to contribute to price stability and growth by means of appropriate wage settlements compatible with employment growth, structural reform and fiscal consolidation. At the current juncture, they are especially encouraged to press ahead with structural reform, and governments are particularly urged to avoid a pro-cyclical loosening of fiscal policies. This is particularly important in those countries where there is a risk of overheating.","Let me now give the floor to the Vice-President to say a few words about the decision to implement a variable rate tender procedure as from the main refinancing operation to be settled on 28 June 2000.","The switch to variable rate tenders in the main refinancing operations is not intended as a further change in the monetary policy stance of the Eurosystem. The new tender mechanism is a response to the severe overbidding which has developed in the context of the current fixed rate tender procedure. For the purpose of signalling the monetary policy stance, the minimum bid rate is designed to play the role performed, until now, by the rate in fixed rate tenders. This change does not in any way rule out the option that, in the future, the main refinancing operations of the Eurosystem may be conducted in principle as fixed rate tenders. A press release setting out a comprehensive description of the new tender procedure will be issued during the course of next week.","Turning to today's other meeting, the General Council considered public finance developments in the EU. The General Council also carried out its first annual review of the functioning of the ERM II, in accordance with Article 16 of the ERM II Agreement.","Finally, let me draw your attention to the calendar for meetings of the Governing Council and General Council in 2001. A separate press release listing the dates as well as the related dates for the press conferences will be made available to you this afternoon. In this context, I should also like to point out that the press conference previously announced for 3 August 2000 has been cancelled.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by Mr. Papademos, Governor of the Bank of Greece, to whom the Governing Council has extended a standing invitation following the EU Council's decision on Greece's adoption of the euro on 1 January 2001.","The Governing Council conducted its regular examination of recent monetary and economic developments and their implications for the risks to future price stability in the euro area. Subsequently, it decided to keep the interest rates on the Eurosystem's monetary policy instruments unchanged. Thus the minimum bid rate in the main refinancing operations of the Eurosystem was left at 4.25%, and the interest rates on the marginal lending facility and the deposit facility were kept unchanged at 5.25% and 3.25% respectively.","Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","In the context of the first pillar of our monetary policy strategy, let me start with the latest monetary developments in the euro area. The three-month average of the annual growth rates of M3, covering the period from March to May 2000, stood at 6.3%, which was unchanged from the period from February to April 2000. At 6.3%, M3 growth was substantially above the reference value of 4 1/2%. This deviation of M3 growth from the reference value, combined with the strong growth of both M1 and credit to the private sector, indicates that liquidity conditions continued to be ample in the euro area through May. The increase in ECB interest rates on 8 June - in conjunction with the interest rate increases made since November 1999 - exerts a moderating influence on both money and credit growth.","Turning to the second pillar of our strategy, considering real economic developments, recent data indicate that the euro area economy has continued to grow at a robust pace. The first estimate of real GDP growth in the first quarter of this year was 0.7%. Although this was slightly below the average observed in the second half of last year, other indicators all point towards strong growth of the domestic economy. The rate of growth of industrial production, for example, not only increased in April, but also incorporated an upward revision for the first quarter. Industrial and consumer confidence both remain at, or close to, record high levels. At the same time, external developments are continuing to provide a positive stimulus to economic growth in the euro area. Reflecting favourable domestic and external conditions for growth, the outlook for euro area growth continues to be positive.","There have not been any major changes in bond and foreign exchange markets since the decision of the Governing Council on 8 June to raise the ECB interest rates. Current bond market yields continue to show market expectations of a period of sustained economic growth in the euro area. At the same time, the accumulated depreciation of the exchange rate of the euro remains a cause for concern and has to be taken into account in the assessment of the risks to price stability.","As regards consumer price developments, inflation in May 2000, as measured by the Harmonised Index of Consumer Prices (HICP), remained at 1.9%. A lower year-on-year change in services prices offset relatively strong rises in other prices, in particular energy and unprocessed food prices. Over the coming months the rate of increase in consumer prices could continue to be affected by lagged effects of the increase in import prices. For the outlook for price stability in the medium term, it is essential that these short-term movements of inflation do not become protracted and translate into second round effects.","Overall, the outlook for price stability will be affected by several factors, which will need to be monitored carefully. First, strong monetary growth and ample liquidity conditions call for continuous monitoring. In addition, it will be important, in the current phase of strengthening economic growth, for wages to continue, on average, to grow at rates compatible with the objective of price stability. This, together with structural reform in the labour market, will be important to sustain the process of non-inflationary growth and to reduce unemployment in the euro area. Developments in import prices, which are influenced by the evolution of the exchange rate of the euro and the price of raw materials, may affect the outlook for prices in the period ahead. Finally, I should like to stress that a pro-cyclical loosening of the fiscal policy stance could also add to upward risks to price stability. In this respect, when looking at the euro area as a whole on a consolidated basis, current fiscal budget plans are not sufficiently ambitious in view of the favourable economic prospects.","Let me now give the floor to the Vice-President to say a few words about other issues discussed by the Governing Council.","First, I should like to address the euro banknote-related issue concerning the determination of the number of banknotes to be printed before the launch date of 1 January 2002. The latest forecast shows that there will be a need to put 14 billion euro banknotes into circulation, compared with last year's estimate of 13 billion. The increase can be attributed to three main factors: a higher than expected figure for national banknotes in circulation, which forms the basis of estimates of the launch stocks; a higher forecast for the use of low-denomination banknotes; and a somewhat slower than previously expected development in the use of electronic money.","Second, the Governing Council also had an exchange of views on recent developments in the EU banking industry. The discussion was based on preparatory work by the Banking Supervision Committee. The Governing Council is well aware that the current process of consolidation is no longer confined to small and medium-sized banks - as it was in the past - but that now it also covers the larger banks at the national level and cross-border mergers and alliances are on the increase. The role of the euro as a factor encouraging this process of consolidation via further integration of money and capital markets is important. The consolidation process is welcome in general since it allows efficiency gains to be achieved in the banking sector. On the other hand, it affects the competitive environment in which banks operate, as well as their risk profile. Therefore, a careful monitoring on the part of the public authorities responsible for prudential supervision and financial stability is required. The Governing Council decided that a report on mergers and acquisitions involving the EU banking industry be prepared for publication in the autumn.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB.","The Governing Council of the ECB today conducted its regular examination of recent monetary and economic developments and their implications for the risks to future price stability in the euro area. Subsequently, it decided to keep the interest rates on the Eurosystem's monetary policy instruments unchanged. Thus, the minimum bid rate in the main refinancing operations of the Eurosystem was left at 4.50%, and the interest rates on the marginal lending facility and the deposit facility were kept at 5.50% and 3.50%, respectively.","Allow me to give you an overview of the main elements of our assessment of the latest information on monetary, financial market and other economic developments.","As regards the developments in the context of the first pillar of the monetary policy strategy of the ECB, no new monetary data have become available since our decision taken on 31 August 2000 to raise the main ECB interest rates. After having increased at a very strong pace in the first quarter of 2000, M3 growth has been showing some signs of moderation over recent months. This moderation has mainly been a consequence of lower growth in the most liquid components of M3, which bear little or no remuneration, indicating that the monetary policy measures taken since November 1999 are gradually feeding their way through. At the same time, the average of annual M3 growth rates for the period from May to July 2000, at 5.5%, continued to deviate on the upside from the reference value of 4 1/2%. The pronounced expansion of credit to the private sector up to July also suggested that households and firms continued to regard financing conditions in the euro area as favourable. In the context of the robust expansion of economic activity, continued ample liquidity conditions would constitute a risk to price stability.","Turning to the second pillar, real GDP growth in the euro area, according to first estimates published by Eurostat today, reached 3 3/4% (on an annualised basis) in the first half of 2000. Currently available forecasts predict that growth will remain above 3% next year. The strength of the euro area's economic expansion in the past few months is in line with these forecasts. In fact, recent indicators suggest that, following the period of acceleration, the economic expansion may now have settled at a high rate of growth. The overall level of confidence has remained at, or close to, record highs in recent months. Moreover, employment continued to grow strongly in the first half of this year and the rate of capacity utilisation has risen further. Taken together, these factors should underpin the growth of private consumption and investment, and thus that of domestic demand.","The positive outlook for the euro area is also supported by external developments. The outlook for growth of the world economy, and thus for growth of euro area exports, has remained favourable. Forecasts of world growth have consistently been revised upwards over the past few months.","Expectations of a period of sustained economic growth in the euro area can also be found in euro area bond markets. Overall, longer-term bond yields in the euro area have shown a very high level of stability in the course of this year, with fluctuations being contained within a relatively narrow range.","The annual rate of increase in the Harmonised Index of Consumer Prices (HICP) was 2.4% in July 2000. Recent consumer price developments in the euro area have been very much influenced by the strong rise in oil prices and the depreciation of the exchange rate of the euro.","While monetary policy cannot address short-term developments in prices, it is imperative for monetary policy that medium-term upward pressure on prices be contained. The risk that the current pressure on the HICP might spill over onto costs and prices determined in the domestic economy must be taken seriously. This holds true in particular in the context of the favourable prospects for economic growth.","The Governing Council reacted to this picture by raising the main ECB interest rates at its meeting on 31 August 2000. This step followed a series of interest rate increases implemented since November 1999. The Governing Council will continue to remain alert to emerging risks to price stability.","It is a matter of fact that recent oil price increases have caused the terms of trade of the euro area to deteriorate, and thus have also reduced real income. This loss of real income cannot be avoided for the economy as a whole. Attempts to shift the burden of this loss within the economy will risk endangering the continuation of a non-inflationary growth process.","For the maintenance of price stability, it will be particularly important, in the current phase of strengthening economic growth, that wages continue, on average, to grow at rates compatible with the objective of price stability. Any attempt for wages to catch up in reaction to recent oil price increases would be highly detrimental to the current favourable growth prospects, since monetary policy would need to react to the resulting upward pressure on prices.","Governments also have to play a role in order not to convey the false impression that the costs stemming from the increase in oil prices could be avoided by relaxing budgetary policies. This would not be in line with the needs of establishing budget positions in balance or in surplus and would complicate the fostering of tax reforms conducive to a stronger growth potential of the euro area.","I should also like to reiterate that the prospects for a stronger potential for growth in the euro area will depend very much on progress made in enhancing the flexibility of labour and goods markets in the euro area. Although reform efforts in several countries have been heading in the right direction, there is still much to be done when looking at the area as a whole.","Finally, let me also say a few words about recent exchange rate developments. I noted earlier that, from a monetary policy point of view, these developments are a cause for concern as they add to the upward pressure on consumer prices in the euro area.","These concerns are compounded by the fact that the exchange rate of the euro does not appear appropriate when looking at economic fundamentals. As you are aware, we have been expressing this concern for some time. In the meantime, we have witnessed a considerable improvement in the economic growth prospects for the euro area. At the same time, owing to measures taken by the Governing Council, the outlook for price stability in the medium term in the euro area has remained intact. At present, inflation in the euro area is among the lowest in the world. The fact that the euro has continued to depreciate over recent months is not in line with these strong economic fundamentals in the euro area. Recent global exchange rate developments are also not in line with international balance of payments positions. Our concerns on this issue remain serious and we shall monitor developments closely.","Let me now give the floor to the Vice-President to say a few words about other issues discussed by the Governing Council.","First, I should like to inform you that the Governing Council has agreed on a TARGET reimbursement scheme for the benefit of TARGET participants in the event of malfunctioning in TARGET. The scheme will apply whenever the same-day processing of payment orders within TARGET cannot be completed. The reimbursement scheme is intended to compensate participants for certain higher costs they incur in having recourse to the standing facilities of the Eurosystem as a result of a malfunctioning. In order to ensure a level playing-field, the scheme also applies to participants in euro real-time gross settlement (RTGS) systems of non-participating national central banks. The legal framework for this reimbursement scheme is reflected in an amended \"TARGET Guideline\" which, in line with the ECB's policy of enhanced transparency, will be published in the Official Journal of the European Communities and made available on the ECB's website shortly.","Second, the Governing Council addressed issues relating to cross-border retail payment services, which are of particular interest for euro area consumers. You may recall that the ECB published a report on this subject a year ago, calling on the banking industry to improve the unsatisfactory service level for cross-border credit transfers before January 2002. Today, on the basis of a Progress Report, we have reviewed the advances of the banking industry against the objectives set by the Eurosystem and we have identified the outstanding issues that need quickly to be addressed. A press release on this topic will be issued later on today. The Progress Report will be available on the ECB's website shortly.","We are now at your disposal, should you have any questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB. The following decisions were taken today:","The minimum bid rate on the main refinancing operations of the Eurosystem will be raised by 0.25 percentage point to 4.75%, starting from the operation to be settled on 11 October 2000.","The interest rate on the marginal lending facility will be raised by 0.25 percentage point to 5.75%, with effect from 6 October 2000.","The interest rate on the deposit facility will be raised by 0.25 percentage point to 3.75%, with effect from 6 October 2000.","Including today's adjustment, since November 1999 we have raised ECB interest rates by a total of 225 basis points, with the objective of sustaining price stability in the euro area over the medium term. Today's decisions continue to aim at ensuring that upward pressures on consumer prices stemming from oil prices and the foreign exchange rate of the euro do not translate into more permanent inflationary tendencies. It is important to address these risks adequately in order to preserve steady GDP and employment growth in the medium term.","Let me explain our decisions in greater detail by reporting on our regular examination of recent monetary, financial and economic developments and their implications for monetary policy aiming to maintain price stability in the medium-term.","Starting with the first pillar of the monetary policy strategy of the ECB, the three-month average of annual M3 growth declined to 5.3% in the period from June to August 2000, from 5.5% in the period from May to July 2000. As had been indicated earlier, in August the preparations of telecommunications firms to transfer the funds due in early September to purchase licences in the German UMTS auction appeared to have a temporary upward impact on M3 growth. Taking this special factor into account, short-term developments in monetary aggregates seem to be more moderate than the August data would suggest. This notwithstanding, from a medium-term point of view, liquidity conditions continue to be ample in the euro area. This assessment is based on the protracted deviation of M3 growth from the reference value since the start of Stage Three of EMU, coupled with the still relatively high growth of loans to the private sector. Hence, risks to price stability stemming from monetary developments remain on the upside.","Turning to the second pillar, we had a thorough discussion on the main factors of relevance to the outlook for price stability at the current juncture.","One important factor under examination was the price of oil, which reached new peaks in mid-September before falling to some extent more recently. Contrary to earlier expectations, energy price developments did not moderate but rather continued to put considerable upward pressure on HICP inflation rates.","The low external value of the euro has heightened the risks of increases in import prices gradually being passed on to consumer prices.","As you are aware, the recent movements in the exchange rate of the euro gave rise to concerns, which the ECB shared with the governors and ministers of finance of all the G7 countries, that it might have adverse implications for the world economy. In order to address these concerns, on 22 September, at the ECB's initiative, the monetary authorities of the United States, Japan, the United Kingdom and Canada joined the ECB in a concerted intervention in the foreign exchange markets. The ECB and its partners will continue to monitor developments closely and to co-operate in foreign exchange markets as appropriate.","Within the euro area, data are pointing to strong real GDP growth in the second quarter of 2000, confirming our previous positive expectations for this year and for 2001. While the possibility cannot be ruled out that the increase in oil prices as such may temporarily dampen growth dynamics over the short term, the forces underlying solid growth in the medium term remain in place. These relate to external demand, which is supported by a strong world economy, as well as to domestic demand, which is supported by both continued favourable financing conditions and strong employment growth. Today's decisions should contribute to maintaining these overall prospects by preventing the emergence of expectations for inflation in the medium term. In fact, when monitoring bond market developments we saw our policy confirmed by continued expectations of lasting price stability and robust growth. We are committed to keeping this picture intact.","Monetary policy continuously needs to ensure that current inflation rates do not affect inflation expectations and thereby both price-setting and wage formation. It is particularly important that this message be understood in an environment in which oil price and exchange rate developments may lead to HICP inflation rates remaining above 2% for a more protracted period than earlier expected. We are currently seeing the direct effects of such external developments on the HICP rate of inflation, with 2.3% in August and, most likely, a higher rate in September. Earlier expectations that the high annual increase in energy prices would gradually moderate in the course of 2000, owing to a levelling-off or even decline in energy prices, have not materialised thus far. Hence, it will be some time before HICP inflation returns to rates below 2%. The action which we have taken today should be understood as a means of maintaining confidence in price stability over the medium term.","As I said at our previous press conference, higher oil prices imply a loss of income for the economy as a whole. In a market economy, the rise in the price of energy is to be reflected in relative price adjustments, so it should affect supply and demand in relation to both particular sources of energy as well as other goods and services. It will be important for social partners to continue to act as responsibly as they have done in the recent past. Wage moderation has made an important contribution to the progress in job creation and in reducing unemployment observed so far. A continuation of this attitude will be a key factor in contributing to non-inflationary growth at a robust pace and should ultimately result in higher employment and the preservation of real income growth for wage earners as well as in sustainable conditions for companies.","The governments of the euro area countries can help the economy to adjust smoothly to the increase in energy prices in several ways. One way is to step up efforts towards structural reform aimed at enhancing the functioning of labour and product markets. This will increase the resilience of the economy to adverse shocks, increase competition and ensure appropriate price-setting by companies. Governments must avoid the mistakes of the past, when fiscal policies were relaxed in response to the effects stemming from increases in energy prices. At the current juncture, fiscal policies should avoid any pro-cyclical bias and should aim at reaching sustainable fiscal positions in the medium term more quickly.","We are now at your disposal, should you have any questions.","Welcome address by Jean-Claude Trichet, Governor of the Banque de France","Ladies and gentlemen,","Today, the Governing Council met for the second time outside Frankfurt. Therefore, let me first of all thank our host, Governor Trichet, for inviting us to meet in Paris and for the generous hospitality offered to us. Our meeting was also attended by the President of the EU Council, Mr. Fabius, and European Commissioner Solbes.","As usual, we conducted our regular examination of recent monetary, financial and economic developments and their implications for a monetary policy aiming to maintain price stability in the medium term. Following this review, the Governing Council decided to leave the ECB interest rates unchanged. Moreover, we exchanged views on achievements so far and the challenges ahead.","Let me briefly report on developments since the last meeting of the Governing Council before turning to our more general assessment. As regards the first pillar of our monetary policy strategy, no new data on monetary developments have become available since 5 October. Turning to the second pillar, oil prices and exchange rates remained two important factors under examination. Before coming down somewhat, oil prices had surged again as markets were concerned about the impact of political tensions in the Middle East. Meanwhile, real GDP growth over the four quarters up to mid-2000 has proved to have been very strong. As mentioned at our last meeting, some uncertainty about short-term growth dynamics stems from oil price developments, as is reflected in survey or confidence data. While these indicators have weakened somewhat in recent months, overall they remain at high levels and underlying forces for continued robust growth remain favourable. This is also reflected in little changed bond market developments.","As foreseen at the time of the Governing Council meeting two weeks ago, energy price developments have had a strong impact on inflation rates; in September the HICP rate ofinflation rose further to 2.8%, compared with 2.3% in August and 2.4% in July. This development did not come as a surprise and was already taken into account in our considerations on monetary policy action on 5 October.","Overall, latest developments underpin the message we stressed on 5 October, namely that monetary policy continuously needs to ensure that expectations remain firmly anchored in the maintenance of price stability, despite current inflation rates.","In addition to commenting on more recent developments, I should like to take the opportunity offered by this special meeting to make a few remarks on where we stand almost two full years after the start of Monetary Union and where we see the main challenges.","First, the process of monetary policy-making and its implementation has functioned efficiently. Our policy intentions to maintain price stability in the medium term are increasingly well understood by the general public. Second, the euro area economy impressively overcame the negative mood prevailing in early 1999 and has recovered to a state of affairs not seen for more than a decade. Not only has real GDP grown by more than 3 1/2% over the past four quarters, but employment has also increased and unemployment has decreased considerably.","Clearly, the external value of the euro stands in sharp contrast with this very positive picture. The undervaluation of the euro is giving cause for concern that it might have adverse implications for the world economy, including the risk to price stability in the euro area that it entails. Adhering to its mandate and following its forward-looking strategy, however, the Governing Council will ensure that price stability can be maintained over the medium term. The confidence of investors in the internal stability of the euro and the positive outlook for euro area growth are contributing to the attractiveness of investing in the euro area and will support a stronger external value of the euro. Looking forward, there are indeed challenges to be taken up by means of appropriate and determined action, but there are good reasons for remaining confident.","Monetary policy will ensure that risks stemming from import price developments will not translate into more permanent inflationary tendencies, thereby also helping to preserve steady GDP and employment growth in the medium term.","Governments have increasingly come to recognise the benefits of sound public finances and adequate policies over the long term so as not to overburden future generations. However, continued determination is required. While overall budget positions have improved significantly, this has been helped considerably by the relatively low level of interest rates and the strong upturn in growth. These favourable conditions should be used to intensify the process of fiscal consolidation. Governments should demonstrate their commitment to structural budget consolidation by accompanying the forthcoming tax reforms with spending restraint. This would ensure the full benefits of such reforms.","Governments have also acted in the field of product markets in order to make them more competitive to the benefit of consumers. A favourable impact on prices, growth and employment of opening up sectors to competition has become clear with regard to the telecommunications and energy sectors. The challenge is now to further reduce the level of regulation so as to stimulate activities in other sectors of the economy, too.","Governments and social partners have started initiatives to enable labour markets to function more efficiently. The remarkable performance in employment growth in the past few years also reflects an increasing proportion in part-time employment and points to some improvements in labour market flexibility.","Further improvements in labour markets can be supported from many sides. The social partners will play a key role by adhering further to a path of moderate wage increases, in line with price stability, and taking into account both productivity developments and the need to reduce the level of unemployment further. The benefits of such behaviour have already been seen. Moreover, there is a broad consensus that the larger part of the still high level of unemployment is of a structural nature; this challenge needs to be addressed continuously by policies which remove structural rigidities from the labour markets and which diminish adverse incentives provided by tax, benefit and pension systems. Ongoing structural reform will be particularly important with regard to the changing character of jobs in an economy which needs to be open to rapid advances in new technologies and globalisation.","The Governing Council feels that the first 22 months of Monetary Union have been very successful. It is determined to continue addressing the challenges related to monetary policy and is confident that other policy areas will play their part in the overall policy framework of the Community and the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted its regular examination of monetary and economic developments and their implications for the maintenance of price stability in the euro area. It decided to leave the minimum bid rate on the main refinancing operations of the Eurosystem unchanged at 4.75%. The interest rates on the marginal lending facility and the deposit facility were also kept unchanged at 5.75% and 3.75% respectively.","Starting with the first pillar of the monetary policy strategy of the ECB, the three-month average of annual M3 growth stood at 5.4% in the period from July to September 2000, unchanged from the three-month period ending in August 2000. While remaining above the reference value of 4 1/2%, M3 growth, reflecting the increases in ECB interest rates since November 1999, has shown signs of moderation over recent months. A further factor to be taken into account is the fact that the growth rate of credit to the private sector increased to 10.8% in September. However, this was influenced by the financing of payments for UMTS licences. The growth rate of total MFI credit to euro area residents remained broadly unchanged in that month.","Turning to the second pillar, one issue under consideration was the likely further development in world economic activity and particularly real GDP growth in the euro area. Overall, the outlook for growth of the world economy remains favourable. In particular, as far as the decline in real GDP growth in the United States in the third quarter of 2000 is concerned, this may be seen as the first sign of an orderly slowdown towards more sustainable levels, in line with the projections currently available. More generally, the extended period of rising and high oil prices has increased the uncertainty surrounding the sustainability of recent growth trends. However, by contrast with previous periods of strong and prolonged increases in oil prices, the world economy is less dependent on oil today and inflationary pressures are still being contained. This should help to avoid any sustained negative effect on confidence, and thereby ensure that the impact of high oil prices on growth remains moderate over the medium term.","Very much the same line of argument applies to the euro area. Euro area real GDP has been growing at a high rate for four consecutive quarters, including the second quarter of 2000. Some monthly indicators which extend into, or cover, the third quarter of this year point to a possible moderation in growth rates. In particular, the pace of growth in industrial production appears to have declined somewhat and some survey data have also indicated that there has been a certain degree of moderation. However, survey data remain at high levels and should be underpinned further by positive factors such as high employment growth. There is thus good reason to remain confident that strong growth will be sustained in the euro area.","This picture is broadly supported by bond yields in the euro area. These have changed little over recent weeks. They continue to be compatible with market expectations of strong economic growth in the euro area in the medium term and with developments in consumer price inflation, which are in line with the ECB's definition of price stability.","We trust that this assessment will also increasingly be reflected in exchange rates. These have clearly lost touch with economic fundamentals and this is posing risks to the world economy. For the euro area in particular the continued undervaluation of the euro vis-à-vis other major currencies is putting upward pressure on import prices. We shall, therefore, monitor exchange rate developments closely.","As regards developments in consumer prices, no additional euro area-wide data on the Harmonised Index of Consumer Prices (HICP) have become available since our last meeting. In September 2000 inflation rose to 2.8%, mainly as a result of higher energy prices. As I mentioned earlier, inflation rates may remain above 2% for longer than was expected just a few months ago, owing to unexpected developments in energy prices and the past decline in the euro.","In order to maintain price stability over the medium term it is important that economic agents accurately perceive the nature of current price developments. In particular, it needs to be recognised that current upward pressures can be successfully overcome if economic agents see them for what they are - namely, one-off or temporary price increases resulting from external factors - and act accordingly. These factors must not give rise to second-round effects. If oil prices do not rise further, as the markets expect, the effects of past oil price increases will gradually drop out of the annual inflation rate.","At the current juncture two main considerations should guide expectations regarding the outlook for the euro area economy.","First, the Governing Council is committed to maintaining price stability in the medium term. It will continue to assess thoroughly the outlook for price stability in the euro area. Monetary policy will not accommodate inflationary tendencies in the euro area and in this way will make its best contribution to sustainable growth.","Second, euro area countries are now in a much better position to withstand the adverse effects of a sharp oil price increase than they were in the 1970s. The Governing Council remains optimistic with regard to the economic outlook for the euro area. This positive outlook needs to be underpinned by responsible fiscal policy-making and by social partners reacting appropriately to the increase in oil prices. It is crucial that any loosening in fiscal policy be avoided. Similarly, continued wage moderation is important in order both to contribute to further decreases in the level of unemployment and to maintain a favourable outlook for price stability. It will be equally important for structural reform to be intensified further in order to allow current high growth rates of real GDP and employment to be sustained into 2001 and beyond, without generating inflationary pressure.","Let me now give the floor to the Vice-President to inform you about two further issues decided by the Governing Council today.","I should like to inform you that, in the course of next week, the ECB will release an update of the so-called Balance of Payments Book. This annual publication documents the statistical methodologies applied in EU Member States for the compilation of balance of payments statistics and, as such, improves the transparency of the compilation of euro area statistics. In addition to updated individual country chapters, this version includes two new chapters on the compilation and methodological standards for the euro area balance of payments and international investment position. The Book will be published on the ECB's website and hard copies will be available at the ECB.","The Governing Council has today also adopted an ECB Regulation establishing transitional provisions for the integration of Greek credit institutions into the Eurosystem's minimum reserve system, as a consequence of the introduction of the euro in Greece as from 1 January 2001.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","Let me first report that the Governing Council decided to reconfirm the existing reference value for monetary growth, namely an annual growth rate of 4 1/2% for the broad aggregate M3. This decision was taken on the grounds that the available evidence continues to support the assumptions underlying the initial derivation of the reference value in December 1998 (and its confirmation in December 1999), namely those for trend potential output growth and the trend decline in M3 income velocity in the euro area. With regard to the assessment of trend potential output growth, there is still no decisive evidence that measurable and lasting increases in productivity growth in the euro area would warrant a significant upward revision in the assumption for trend potential growth. This notwithstanding, the uncertainties surrounding estimates of the medium-term development of potential output growth in the euro area have become skewed to the upside. Against this background, the Governing Council will carefully monitor further evidence with regard to an acceleration of productivity growth in the euro area. The Governing Council also wishes to emphasise that potential output growth could be strengthened by further structural reforms in the labour and goods markets. Naturally, the ECB's monetary policy will take such changes appropriately into account. The ECB will issue a press release today to provide some background information on the review of the reference value carried out by the Governing Council.","The Governing Council also conducted its regular examination of monetary and economic developments and their implications for the maintenance of price stability in the euro area. It decided to leave the minimum bid rate on the main refinancing operations of the Eurosystem unchanged at 4.75%. The interest rates on the marginal lending facility and the deposit facility were also kept unchanged at 5.75% and 3.75% respectively.","Starting with the first pillar, it is fair to say that M3 growth rates have shown signs of moderation over the past few months. However, taking into account the protracted upward deviation of M3 growth from the reference value of 4 1/2% and the still robust growth of credit to the private sector, caution continues to be warranted with regard to the upside risks to price stability stemming from the monetary side.","As for key indicators related to the second pillar, the assessment is currently complicated by increased uncertainty. In the first place, this applies to tendencies in the world economy. With regard to the evolution of real GDP growth currently foreseeable for the euro area, the underlying dynamism of growth continues to prevail, although subject to some moderation. Developments in euro area bond markets, characterised by a decline in bond yields in November and December, broadly confirm this assessment of growth. In foreign exchange markets, also reflecting the current outlook for global growth patterns, the euro has appreciated against the currencies of the euro area's most important trading partners. The Governing Council considers this development to be a step in the right direction.","Turning to consumer price developments, recent developments have continued to reflect, above all, developments in oil prices, but also previous developments in the euro exchange rate. Over the medium term, the upward pressures from energy prices are expected to disappear gradually, while HICP rates of inflation will increasingly depend on domestic forces. On balance, the Governing Council judges the risks to price stability still to be on the upside.","The Governing Council will continue to counteract any risks to price stability in the medium term by responding in a timely manner. At the same time, it does stress the importance of all economic actors responding in an appropriate manner to the current oil price-led increase in consumer price inflation. In particular, social partners can rely on the commitment of monetary policy to maintain price stability over the medium term and they should continue along the path of wage moderation observed in recent years. In the same vein, fiscal authorities should control expenditure growth, as it could otherwise fuel upward pressures on prices.","Let me now give the floor to the Vice-President to inform you about other issues discussed by the Governing Council.","First of all, I should like to provide you with information on several issues relating to the euro banknotes and coins.","First, pursuant to the Treaty (Article 106 (2)), the ECB has the exclusive right to approve the volume of coins issued by the euro area Member States. To this end, the Governing Council adopted an ECB Decision on the volume of coin issuance in 2001. This Decision, which also covers Greece for the first time, will soon be published in the Official Journal of the European Communities.","Second, in order to raise citizens' awareness and to prepare them for the cash changeover at the beginning of 2002, the Governing Council agreed to organise a series of conferences on euro changeover issues in the course of 2001. These conferences will bring together the key parties involved in the euro cash changeover process, both at the national and at the European level, with a view to focusing on the cash changeover preparations. This action should also be seen against the background of the Conclusions of the European Council meeting in Nice on 7 to 9 December 2000.","Third, the Governing Council decided that tests on the euro banknotes will be carried out in all euro area countries in 2001. These tests will offer companies an opportunity to check and fine-tune their cash and/or vending machines and sensors with regard to their being able to recognise and accept euro banknotes. They will be organised by the euro area national central banks; the Bank of England will also be invited to participate. The ECB will monitor the test scenario in order to ensure a consistent approach and will act as the contact point for companies registered in a country without a test centre.","Fourth, further to the ECB's press release of 3 August 2000, when the decisions of the Governing Council regarding the euro area financial modalities for the 2002 cash changeover were announced, the Governing Council agreed on general principles for the so-called frontloading and sub-frontloading of euro banknotes outside the euro area as from 1 December 2001. Today's decision, which complements the principles agreed with regard to the frontloading and sub-frontloading of euro banknotes inside the euro area, has to be seen as a contribution to ensuring a smooth cash changeover in 2002. You will find further information relating to this decision in a separate press release to be issued this afternoon.","With regard to TARGET, the Governing Council decided to establish a long-term calendar of TARGET operating days to be applied from 2002 onwards. The establishment of such a common long-term calendar was deemed necessary in order to reduce uncertainties for financial markets. In addition to Saturdays and Sundays, TARGET as a whole, including both domestic and cross-border transactions, will be closed for a total of six days in the calendar year. You will find further information relating to this decision in a separate press release to be issued this afternoon.","The Governing Council also adopted several legal acts related to the field of accounting, which will be published shortly in the Official Journal of the European Communities.These acts relate to the legal framework for accounting and reporting within the ESCB, the annual accounts of the ECB and the allocation of monetary income of the euro area national central banks and losses of the ECB for the financial years 1999 to 2001.","Let me also draw your attention to some of the decisions taken by the Governing Council at its previous two meetings.","First, the ECB budget for 2001 has been approved. It includes a staff increase of 7%. By the end of 2001, the ECB will therefore have approximately 1,100 staff members.","Second, in connection with the Bank of Greece's entry into the Eurosystem, the Governing Council adopted several legal instruments on the transfer of foreign reserves from the Bank of Greece to the ECB, the crediting to the Bank of Greece of a corresponding claim on the ECB and the contribution to the capital, reserves and provisions of the ECB by the Bank of Greece. These legal acts will be published in the Official Journal of the European Communities shortly. Amendments to several other legal instruments were also adopted.","Third, I should like to mention that, following the very positive reaction to last year's \"Helsinki Seminar\", the ECB is organising a second seminar with high-ranking officials from the central banks of the EU accession countries. This seminar will be held tomorrow in Vienna, in co-operation with the Oesterreichische Nationalbank, and will focus in particular on issues related to the price dynamics in accession countries, the role of the central banks in managing the accession process and the co-operation between the Eurosystem and the accession countries' central banks. The \"Vienna Seminar\" will be followed by a press conference at 4 p.m. tomorrow.","Finally, I should like to inform you that the Governing Council has decided that its next meeting, which is scheduled for 4 January 2001, will be held by means of a teleconference. The press conference originally planned for that day has thus been cancelled. The next press conference will take place on 1 February 2001.","Ladies and gentlemen, let me welcome you to our first press conference of 2001. The Vice-President and I are here to report, as we have done for more than two years now, on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the Eurogroup President, Minister Reynders, as well as by Commissioner Solbes. Let me also take this opportunity to again welcome Greece as the twelfth country to join the euro area. Mr. Papademos, the Governor of the Bank of Greece, has been participating in our meetings as a member of the Governing Council since 1 January 2001.","The Governing Council conducted its regular examination of monetary and economic developments and their implications for the maintenance of price stability in the euro area. The decision to keep interest rates unchanged reflects the Governing Council's assessment that the risks to price stability in the medium term now appear more balanced than at the end of last year. Factors which might pose upward risks to price stability in the medium term are still present and as such will be subject to ongoing close monitoring.","Let me elaborate on this assessment. Starting with the first pillar of the monetary policy strategy of the ECB, monetary data for December 2000 confirmed the gradual moderation of the growth of monetary aggregates which has been observed since the spring of last year. According to the latest data, the three-month average of the annual growth rates of M3 in the months from October to December 2000 stood at 5.0%, which was slightly lower than the average of 5.1% recorded for the period from September to November 2000. Therefore, after the recent slowdown in monetary growth, the risks to price stability from the monetary side have become increasingly balanced. Caution still needs to be exercised, however, given the continued dynamics in credit growth to the private sector and the upward deviation of M3 from the reference value in the past.","Turning to the examination under the second pillar, broadly similar indications are emerging, as inflationary impulses resulting from previous developments in oil prices and the external value of the euro are gradually diminishing.","As regards economic activity, uncertainty concerning the external environment for the euro area has increased, mainly related to signals that the slowdown in growth in the United States may be more significant than earlier expected. This is likely to result, directly and via a spillover to other regions, in some deceleration of growth in the world economy. World real GDP growth, which in 2000 posted its strongest performance for many years, may therefore moderate in 2001 but will still remain at an acceptable level.","This deceleration will clearly have some dampening effects on euro area net exports. The euro area is a large economy where exports of goods and services amount to around 17% of GDP only. Economic activity in the euro area is therefore determined mainly by domestic factors. Overall, the fundamentals of the euro area remain broadly favourable. While, as recently published data show, real GDP growth slowed somewhat in the second half of last year, the level of business and household confidence has remained high, supported by, inter alia, high degrees of capacity utilisation and ongoing unemployment declines. Moreover, real income in the private sector will benefit from lower oil prices and from the reductions in direct taxes in 2001. Hence, while downside risks to real GDP growth exist, growth is very likely to continue at a reasonably robust pace.","Developments in the euro area bond markets are in line with this outlook for economic activity. Moreover, inflationary expectations implied by bond yields confirm that the financial markets expect current levels of consumer price inflation to be temporary, and price stability to be maintained in the medium term. This assessment may also have been reinforced by the recent moderation in oil prices and the movement of the euro exchange rate in the period since the end of October 2000.","Lower oil prices and the appreciation of the euro have already produced some effects on price developments. In December 2000 the annual rate of increase in the Harmonised Index of Consumer Prices (HICP) declined to 2.6%, from 2.9% in November. A confirmation of recent developments in oil prices and the euro exchange rate would contribute to a further downward adjustment of overall HICP inflation in the period ahead. Over the near term, this process may be slowed down by the delayed impact of past import price increases and possibly also by some transitory further food price rises caused by the current health issues associated with beef consumption. It may therefore take some time for HICP inflation to move back below 2%.","Notwithstanding the assessment that the risks to price stability are now more balanced, there are still factors posing upside risks which therefore require continued attention. These are mainly related to potential second-round effects on wages of the past increases in import prices, as well as to bottlenecks and shortages in labour markets. For the medium term, it remains paramount that wage developments remain moderate.","In addition, it is crucial that structural adjustments continue. This requires sustained labour market reforms, continuing liberalisation of product markets and further integration in the financial services sector, all of which will expand economic activity and increase employment. It is equally important that further progress be achieved in the area of fiscal policy reform, with continuing progress in fiscal consolidation through limits in public spending growth, allowing both a reduction in remaining budget deficits and an alleviation of the fiscal burden on corporations and households without threatening or slowing the progress in fiscal consolidation.","Overall, the existence of the euro and the single monetary policy has provided the euro area with an institutional setting which leaves it significantly less exposed to external influences. Within the euro area the maintenance of price stability over the medium term, together with further progress on structural reforms, will provide an important contribution to the achievement of sustained non-inflationary economic growth and will thereby also support a further solid and sustainable expansion of the world economy.","Let me now give the floor to the Vice-President, who will inform you about other issues decided by the Governing Council.","The Governing Council has adopted a set of standards, recently endorsed by the G10 Governors, as the minimum standards of the Eurosystem's common oversight policy on payment systems. The Eurosystem will assess all systemically important payment systems in the euro area against these \"Core Principles\" and will make the results of its assessments available to the public.","Concerning issues relating to euro banknotes and coins, I should also like to provide you with the following information.","First, the Governing Council adopted an ECB Guideline on the 2002 cash changeover. Owing to the crucial importance of this matter, and given the responsibility of the Eurosystem as a whole in achieving a smooth cash changeover, a legal framework has been established. The Guideline will enable all those involved to become familiar with the basic rules to be followed in preparing for the introduction of the euro banknotes and coins. This ECB Guideline will be published today on the ECB's website and shortly in the Official Journal of the European Communities.","Second, yesterday evening the members of the Governing Council were given a presentation by Publicis, the communication agency selected to assist in conducting the Eurosystem's Euro 2002 Information Campaign, on the current status of the campaign. This focused in particular on the creative concept of the mass media campaign, which will start in September 2001. A website dedicated to the Euro 2002 Information Campaign has now been launched in all 11 official languages of the European Community (www.euro.ecb.int). The website currently contains a section on the euro banknotes and coins. Further sections will be added over the next two weeks to help specialist groups and the general public to prepare for the introduction of the euro banknotes and coins. These sections will be updated throughout the year.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted its regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. The decision to keep interest rates unchanged reflects the following assessment.","As regards the first pillar of the monetary policy strategy of the ECB, data for January 2001 indicated that the moderation of the growth of monetary aggregates, which has been observed since the spring of last year, continued. According to the latest data, the three-month average of the annual growth rates of M3 in the months from November 2000 to January 2001 stood at 5.0%, which was slightly lower than the average of 5.1% recorded for the period from October to December 2000.","As regards the second pillar, there are indications that euro area real GDP growth was lower in the second half of last year than in the first half, but the general outlook for this year and next remains positive. Economic activity in the euro area is mainly determined by domestic factors. The conditions on the domestic side, as shown in long-term financing costs and disposable income developments, for example, have remained favourable. In addition, the euro area's high rates of capacity utilisation, continuing employment growth and declines in unemployment should contribute to fostering private investment and consumption. The overall level of confidence in the euro area has remained high and economic indicators relating to developments around the turn of the year support the view that economic growth will remain fairly robust.","This notwithstanding, an element of uncertainty with regard to the outlook for euro area growth continues to be the world economy and its potential impact on euro area developments. However, at this juncture, there are no signs that the slowdown in the US economy is having significant and lasting spillover effects on the euro area. Nevertheless, a close monitoring of global developments is warranted.","As regards recent price developments, the annual rate of increase in the Harmonised Index of Consumer Prices (HICP) in January 2001 was 2.4%, as published by Eurostat, 0.2 percentage point lower than in December 2000. The rate of increase in energy prices continued to decline, but other HICP components, notably unprocessed food and services prices, rose significantly. The latter have been affected by increases in indirect taxation and administered prices. Oil prices and the euro exchange rate in January and February 2001 were subject to some volatility. Caution is therefore warranted in assessing their likely impact on HICP inflation in the short run. Moreover, indirect effects of past oil price increases and the depreciation of the euro are still coming through, as witnessed by the continued rise in producer price increases for consumer goods. Taken together, these factors might prevent consumer price inflation from falling quickly below 2% for some months to come.","Governments can contribute to fostering non-inflationary growth by continuing structural reforms in order to further enhance the flexibility of labour and goods markets in the euro area. Long-term growth perspectives for the euro area will also benefit if governments reinforce their efforts to proceed along the path of fiscal consolidation. It is regrettable that budgetary plans, as recently expressed in countries' updated stability programmes, are not very ambitious. Tax cuts are welcome, but current budgetary plans foresee insufficient spending restraint.","Overall, for the medium-term outlook for price stability, risks appear to be more balanced than in late 2000. In particular, the indications from M3 growth over recent months point to a gradual decline in upward risks. However, some factors still argue for caution. In this respect, it is crucial that social partners continue the process of wage moderation seen in the past. In this, they can be assured that the Governing Council will maintain price stability over the medium term.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the President of the Eurogroup, Mr. Reynders.","The Governing Council conducted its regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. It decided to keep the key ECB interest rates unchanged. In order to explain today's monetary policy decisions in some more detail, let me share with you our assessment of the information provided under the two pillars of the monetary policy strategy of the ECB.","As regards the first pillar, M3 growth has been on a gradual downward trend since spring 2000. The three-month average of the annual growth rates of M3 reached 4.8% in the period from December 2000 to February 2001. Growth in credit aggregates has also been less buoyant over the past few months. All in all, the information from the first pillar is signalling that upward risks to price stability have diminished over the past few months.","As regards the second pillar, upward risks to price stability have also diminished somewhat over the past few months, but they have not disappeared. Starting with the external environment for the euro area, forecasts for world growth have been revised downwards, and the uncertainty surrounding these forecasts has increased. In particular, this applies to the extent and duration of the slowdown in the United States and Japan, but also to associated spillovers to the rest of the world. While this indicates that the external environment is less favourable than it was up to autumn 2000 and is marked by high uncertainty, there are no indications of a risk of a global recession.","Turning to the euro area, it is of utmost importance that current developments in the Harmonised Index of Consumer Prices (HICP) be judged appropriately. Short-term price developments are indeed subject to volatility, owing to energy and unprocessed food prices, in particular. Over recent months, the energy component has again been affected by fluctuations in oil prices and the exchange rate of the euro. Unprocessed food prices have been influenced by health concerns related to meat consumption and the consequences of the outbreak of foot-and-mouth disease. Also if these most volatile components are excluded, there has been a broad upward movement in HICP inflation since the summer of 1999. In part, this reflects the pass-through of the indirect effects of past rises in oil prices and the past depreciation of the euro. This impact is likely to continue for some more months to come, but should gradually diminish over time. This should be taken into consideration by the general public and by wage negotiators as consumer price inflation above 2% for some more months will be temporary. Beyond the short term, the abatement of domestic upward pressure on HICP inflation remains conditional on the continuation of wage moderation, and wage developments remain an upward risk to price stability which needs to be closely monitored.","The deterioration of the external environment will imply a fall from last year's high rate of economic growthin the euro area this year; this reduction will be stronger than that envisaged some months ago. At the same time, however, available forecasts suggest that actual growth will be in line with, or above, trend potential growth. Hence, the moderation in growth should not be a source of pessimism as regards the economic strength of the euro area itself. This is all the more true as the euro area has not accumulated any fundamental macroeconomic imbalances over recent years, and domestic demand can therefore be expected to continue to sustain real GDP growth.","Industrial confidence has been deteriorating, reflecting the weakening of world demand. However, consumer confidence has remained high in recent months. Growth in private consumption is expected to remain sound, underpinned by increases in real disposable income which, in turn, reflect ongoing employment growth, reductions in direct taxes and lower oil prices. Economic growth in the euro area is expected to remain solid.","Monetary policy has to focus on the outlook for price stability in the medium term. With this commitment to price stability and the policy decisions since the start of Monetary Union, monetary policy has supported economic growth and employment and will continue to do so. Nominal and real short-term as well as long-term interest rates are not high by historical standards.","Monetary policy cannot lift the euro area's production potential, which is largely determined by structural factors. The improvement of the structural conditions for raising potential growth is undoubtedly of utmost priority. The responsibility for this lies with governments, as well as with the key national economic agents on the side of labour and industry. To increase potential output growth, comprehensive structural reform policies aimed at an increased labour market participation rate and improved investment incentives are required. While acknowledging that significant progress has been made, a more ambitious implementation of market-oriented reforms is needed in many areas. The still high level of unemployment calls for ongoing policy efforts to remove structural rigidities from the labour markets and to diminish adverse incentives provided by tax, benefit and pension systems. It is crucial to increase investment incentives in the euro area through structural policy measures such as deregulation, privatisation and tax reforms. The continuous contribution of social partners will be essential to prevent temporary inflationary pressures from possibly translating into longer-lasting effects. Finally, fiscal policy will have to make its contribution towards enhancing the growth potential of the economy. This requires both the continuation of the fiscal consolidation process in line with the Stability and Growth Pact and qualitative improvements on the income and expenditure sides of the budget.","In addition, I should like to inform you that the visual appearance of the euro banknotes and their security features will be unveiled to the public at a press conference to be held on 30 August 2001, shortly before the euro banknotes are frontloaded to banks on 1 September 2001. It will take place immediately after a press conference we shall now hold to report to you on the Governing Council meeting on that day. Therefore, we have decided to bring the press conference originally scheduled for 13 September forward to 30 August 2001. Moreover, the press conference planned for 2 August 2001 has been cancelled.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted its regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. It decided to lower the key ECB interest rates by 25 basis points. This reduction is to be seen as an adjustment of the level of interest rates to somewhat lower inflationary pressure over the medium term. On the basis of the information available, this is the appropriate level of interest rates to ensure that the euro area economy will be able to maintain price stability and thereby to contribute to sound economic growth over the coming years. In order to explain today's monetary policy decisions in some more detail, let me share with you our assessment of the information provided under the two pillars of the ECB's monetary policy strategy.","As regards the first pillar, also taking into account the latest available information, monetary developments no longer pose a risk to price stability. M3 growth has been on a gradual downward trend since spring 2000, reflecting the increase in the key ECB interest rates which occurred in the period from November 1999. The three-month average of the annual growth rates of M3 was 4.8% in the period from January to March 2001, which is close to the reference value of 4 1/2%. In the past few months, some slowdown in credit aggregates has also been visible. In addition, as already stated on several occasions, there have been indications that the monetary growth figures are distorted upwards by non-euro area residents' purchases of negotiable paper included in M3. This has now been confirmed by clear evidence, and the magnitudes involved are significant. As regards holdings of money market fund units/shares by non-euro area residents, on which we now have solid statistical data, the distortion has become more sizeable over recent months and currently amounts to around half a percentage point. In addition, there have been non-negligible upward distortions to the annual growth of M3 as a result of non-euro area residents' holdings of other marketable paper included in M3, for which precise statistical information is currently being developed. The ECB will keep the public informed about ongoing developments in these categories of M3. As these factors can be broadly identified, the information content under the first pillar is ensured. Taking into account these upward distortions, as well as all information from the first pillar, it can now be concluded that there is no longer a risk to price stability over the medium term emanating from the first pillar.","As regards the second pillar, upward risks to price stability over the medium term have diminished somewhat. This view is supported by all forecasts. The evidence available, however, requires continued monitoring of growth trends and wage developments, in particular.","First, owing to the less favourable external environment, a moderation in real GDP growth in the euro area will contain upward pressure on consumer prices arising from the demand side. Notwithstanding the high uncertainty surrounding the outlook for external developments, forecasts suggest that actual economic growth will nevertheless be broadly in line with trend potential growth, supported by domestic demand. Second, wage moderation has so far been maintained for the euro area as a whole, despite the effect of the oil price shock. This has been a very positive factor and lends support to those forecasts which assume that current inflation rates will not spill over into future wage negotiations. This notwithstanding, wage developments need to be continuously monitored. An abatement of domestic cost pressures on HICP inflation remains conditional on the continuation of wage moderation. For the Governing Council, it is of utmost importance that wage negotiators should have full confidence in monetary policy maintaining price stability in the euro area over the medium term.","For some months to come, this medium-term trend will be overshadowed by temporary developments in unprocessed food prices following the health concerns related to meat consumption and the consequences of the outbreak of foot-and-mouth disease. Moreover, the pass-through of the indirect effects of past rises in oil prices and the past depreciation of the euro is likely to continue for some months. The effects of these extraordinary factors should, however, gradually diminish over the course of this year, implying an improved outlook for inflation to fall below 2% in 2002.","The Governing Council has to focus on the outlook for price stability in the medium term as only this perspective allows for the time lags for monetary policy to work its way through the economy. The information under the first pillar indicates that price stability can be maintained over a medium-term horizon. The information under the second pillar indicates that upward pressure on prices can be contained. The Governing Council will continue to monitor wage developments as well as external and domestic demand trends. The picture from the two pillars taken together is positive. At the same time it underlines the need to remain vigilant.","Fiscal policy will have to continue the consolidation process in line with the Stability and Growth Pact and the commitments made in the context of the stability programmes. The avoidance of inflationary pressures on a permanent basis in an environment of solid growth requires that governments and social partners implement decisively the structural measures in labour and product markets that are essential for lifting the growth potential of the euro area.","Let me now give the floor to the Vice-President, who will inform you about two other issues relating to the production and introduction of the euro banknotes.","First, I should like to address the production of euro banknotes after 2001. As you are aware, the euro area national central banks (NCBs) are producing the euro banknotes they will need for the initial supply at the end of this year. With regard to the production after 2001, the Governing Council has decided to apply a so-called decentralised production scheme with pooling. This means that not all banknote denominations will be produced by every printing works involved. In 2002 some 4.8 billion banknotes will be produced. This volume is based on the estimated national requirements of the NCBs. As the future national needs for euro banknotes cannot be reliably determined on account of the potential impact of banknote migration between countries, production from 2003 onwards will be allocated to the NCBs, taking into account their launch stock requirements, the capital key and the specific situation of banknote demand in some countries.","Second, many of you will be aware that this is the \"Week of Europe\" and that yesterday marked the 51st anniversary of the Declaration of Robert Schuman. In this context, the ECB participated in the European Institutions' open days in Brussels and in Strasbourg, which offered another opportunity for the public to obtain information about the introduction of the euro banknotes and coins. Furthermore, as previously announced, a series of conferences on euro changeover issues is being organised by the NCBs in the framework of the Euro 2002 Information Campaign, in which the members of the Executive Board are actively participating. These conferences aim to bring together the key parties involved in the euro cash changeover process. Two such conferences have been held so far: one on 6 March in Brussels and one on 4 April in Madrid. Two further such conferences will take place next week: on 15 May in Lisbon and on 16 May in Frankfurt.","I should also like to remind you that comprehensive information related to the introduction of the euro banknotes and coins can be obtained in all 11 official Community languages from the Euro 2002 Information Campaign website (http://www.euro.ecb.int).","Finally, the Governing Council has decided that its two meetings outside Frankfurt in 2002 will be held in Maastricht on 7 February to celebrate the 10th anniversary of the signing of the Treaty on European Union (\"Maastricht Treaty\") and in Luxembourg on 4 July.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meetings of the General Council and the Governing Council of the ECB.","The Governing Council conducted its regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. On the basis of the information available at today's meeting, the Governing Council concluded that the current level of interest rates remains appropriate to ensure that the euro area economy will be able to maintain price stability in the medium term, and thus decided to keep the key ECB interest rates unchanged.","Let me share with you our assessment of the information provided under the two pillars of the ECB's monetary policy strategy in some more detail.","As regards the first pillar, M3 growth has been on a gradual downward trend since spring 2000, driven predominantly by its most liquid components and reflecting the increase in the key ECB interest rates which occurred in the period between November 1999 and October 2000. Over recent months, M3 growth has stabilised. The three-month average of the annual growth rates of M3, adjusted - as explained in the last Monthly Bulletin - for the effects of holdings by non-residents of the euro area of money market fund shares/units, was 4.6% in the period from February to April 2001. In addition, as was also explained earlier, there are preliminary indications which suggest that holdings by non-residents of the euro area of other negotiable paper included in M3 may have contributed half a percentage point or so to the annual growth of M3 in recent months. The growth rate of loans to the private sector continued to moderate over recent months.","As regards the second pillar, inflationary pressures will ease over the medium term, although this is likely - for some months to come - to be overshadowed by short-term increases in inflation that relate mainly to oil prices and the impact of animal diseases on food prices.","Primarily as a result of the less favourable external environment, real GDP growth in the euro area is expected in 2001 to come down from the high level reached in 2000, and this should contribute to a dampening of upward pressure on consumer prices. This picture of a moderation in economic growth has been confirmed by recently released euro area survey data for May and by partial evidence from national accounts data of euro area member countries for the first quarter of 2001.","When looking beyond this year, the outlook for real GDP growth in the euro area is subject to uncertainty with regard to the global outlook for growth. Expectations are that economic growth will be supported by domestic demand and will remain broadly in line with trend potential growth. This is consistent with the strong economic fundamentals of the euro area, current and planned tax reforms, and favourable financing conditions.","Wage moderation will have to play an important role in containing inflationary pressures in the coming years. When looking back, as already indicated in my previous introductory statement, the wage developments seen so far have been satisfactory. Looking forward, there is ongoing concern about the emergence of second-round effects, so that wage developments need to be monitored very closely.","In this context, it appears particularly important that wage setters fully understand that current price developments are strongly affected upwards by factors which should only have a temporary impact on the inflation rate. The recent rise in HICP inflation, to around 3% in April 2001, was due mainly to developments in unprocessed food prices, the rebound in oil prices and increases in indirect taxes and administered prices. Moreover, the pass-through of the indirect effects of past rises in oil prices and last year's depreciation of the euro have played a role. All these factors will also show an upward effect in the inflation rate for May However, if no further unfavourable price shocks occur, this upward pressure should soon start to diminish, making it likely that annual HICP inflation will start to fall in the course of this year and be below 2% in 2002.","Nevertheless, there is a need to remain vigilant as regards future developments affecting the balance of risks to price stability, although weaker economic growth than that currently expected might reduce inflationary pressures. Close attention needs to be paid to factors which might entail a resurfacing of upward risks to price stability, including, in particular, wage developments, energy prices and recent movements in the exchange rate, which is an important indicator to be taken into account under the second pillar. Let me reiterate our position that we have a strong interest in a strong euro.","The current increase in the euro area fiscal deficit ratio, the first deterioration since 1993, is disappointing. Fiscal policy will have to resume the consolidation process and governments should abide by the commitments entered into under the Stability and Growth Pact and to those made in the context of their stability programmes. Progress along the road towards the medium-term objective of achieving budgetary positions \"close to balance or in surplus\" cannot be postponed.","Finally, the expansion of the growth potential of the euro area economy is an objective to be pursued with utmost determination. The best contribution monetary policy can make in this regard is to preserve price stability. Ongoing policy efforts to remove structural rigidities in the product and labour markets and to diminish disincentives created by tax, benefit and pension systems as well as to raise investment incentives through deregulation and privatisation are all working in this direction and should be taken as the main challenge for economic policies in the euro area.","Let me now give the floor to the Vice-President, who will inform you about some other issues.","First, next Thursday (14 June) will be another key date in the countdown to the cash changeover, when 200 days will be left before the introduction of the euro banknotes and coins. To date, already more than 8 billion euro banknotes have been printed. This represents over 80% of the launch stock. In order to mark next week's key date, the third media kit focusing on the production of the euro banknotes and coins and on the changeover modalities will be released in all 11 official Community languages as part of the Euro 2002 Information Campaign. Let me take this opportunity to emphasise that the Eurosystem is delighted with the positive response that the \"Partnership Programme\" has received. This is a very important communication channel of the Euro 2002 Information Campaign. So far, over 1,000 organisations from the euro area and beyond have been participating as so-called \"Euro-Partners\". By mobilising other significant players in the cash changeover process and assisting them in communicating with their staff, customers and business partners, the Partnership Programme helps to get the right information about the cash changeover to the right places at the right time.","Second, at its meeting, the General Council conducted its annual review of developments in public finances in the EU. It also carried out its annual review of the functioning of ERM II.","Finally, let me draw your attention to the calendar for meetings of the Governing Council and General Council in 2002. A separate press release listing the dates as well as the related dates for the press conferences is being released this afternoon.","We are now at your disposal for questions.","Ladies and gentlemen,","Today, the Governing Council met for the third time outside Frankfurt. Therefore, let me first of all thank our host, Governor O'Connell, for inviting us to meet in Dublin and for the generous hospitality offered to us. Our meeting was also attended by Mr. Solbes from the European Commission.","As usual, we conducted our regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. The Governing Council decided to keep the ECB key interest rates unchanged. We also exchanged views on the issue of the convergence and divergence of economic developments within the euro area.","Let me very briefly report on our regular examination and assessment of the information provided under the two pillars of the ECB's monetary policy strategy. Against the background of available information, the current level of ECB key interest rates remains appropriate to ensure that the euro area economy will be able to maintain price stability in the medium term. As regards the first pillar, no new data on monetary developments have become available since 7 June, so that our previous assessment remains unchanged. Concerning the second pillar, recently published data on real GDP growth in the first quarter of 2001 as well as on industrial production in April 2001 pointed to a moderation of economic activity in the euro area, and the latest information on global economic developments continues to suggest significant uncertainty. In addition, as I already indicated two weeks ago, HICP inflation rose further, to 3.4% in May. Price developments continued to reflect mainly temporary upward pressure from energy and food prices, which was taken into account in our previous decisions.","Overall, the latest information did not change our assessment of the outlook for price stability over the medium term. We continue to expect the currently high rates of inflation to remain a transitory phenomenon and, in the absence of further unfavourable price shocks, inflation rates should fall below 2% in 2002. These developments are expected to take place in an environment of weaker economic growth, which should, however, remain broadly in line with trend potential growth of the euro area. We will continue to remain vigilant as regards future developments affecting the balance of risks to price stability, including - in particular - monetary developments, real GDP growth, price setting behaviour and wage developments. At this juncture, at which price developments are affected mainly by transitory factors, it is crucial that the current upward movement of prices does not become more lasting, and it is therefore important that wage moderation is continued.","I should like to take the opportunity offered by this special meeting to make a few remarks on what is often referred to as a \"one size fits all\" monetary policy. In this connection, I will address a few issues related to the ongoing discussions about the degree of convergence in the euro area. Itis indeed not surprising that many academics and market analysts devote much of their research to one of the most interesting questions in contemporary economics, namely the conduct of monetary and economic policies in a currency area extending from Finland to Portugal and from Greece to Ireland and encompassing one decision-making body for monetary policy and many more actors for other fields of responsibility.","Concerning monetary policy, it is obvious that the Governing Council of the ECB can only pursue one objective - the maintenance of price stability in the euro area as a whole. In doing so, it needs to adopt an area-wide perspective in its assessment of economic conditions and the outlook for price stability. Such an area-wide perspective, of course, applies to all central banks in the world which are responsible for conducting monetary policy.","The Governing Council has defined price stability with a focus on the euro area, namely as \"year-on-year increases in the HICP for the euro area of below 2%\". This definition applies to the medium term. The Governing Council's monetary policy decisions are based on an area-wide analytical framework, its now well-known two-pillar strategy. The first pillar assigns a prominent role to monetary developments in the euro area and the second pillar encompasses a wide range of other economic and financial variables - again exclusively with a euro area-wide perspective. Underpinned by this two-pillar analysis, the Governing Council then arrives at an overall assessment and sets the ECB key interest rates with a view to maintaining price stability for the euro area in the medium term. These are the basics of our approach to conducting the single monetary policy for the euro area as a whole.","Evidently, a single monetary policy for a group of 12 countries does not imply the same economic developments in the same year in all countries alike, nor does it imply identical developments in individual regions or sectors within a country. Rather, real GDP growth may differ, and there may be differences in unemployment rates or other important economic variables, i.e. there may be regional differences, as is the case in all large economic and monetary areas of the world. Such differences are unavoidable and have existed, within countries, since way back. In many respects, they reflect differences in the quality and in the success of the economic policies of individual countries comprising the euro area. Successful policies enlarge a country's production potential by means of structural reform, ensure a flexible functioning of the economy to fully exploit this potential and ultimately increase per capita income, enhance employment growth and reduce unemployment. As a consequence, successful countries also achieve sound fiscal positions in combination with diminishing taxation. As we are well aware, there are examples among the euro area countries where such highly positive developments have taken place in the recent past. These examples clearly demonstrate that there is ample room for competition in the field of best practices. The most successful countries will eventually provide a benchmark against which other countries will be measured.","However, there are types of divergence that can be a matter of concern. Here I would refer, in particular, to a situation marked by high rates of national inflation as a result of excessive wage increases, an unsustainable expansion of profit margins and/or an expansionary stance in fiscal policy. If such developments were to become entrenched in the economy, this would lead to a loss in competitiveness and, eventually, to a loss in output and employment growth.","While there is no way for the single monetary policy to take responsibility for such national developments, just as there is no possibility for national authorities to adjust nominal exchange rates within the euro area after having adopted the single currency, national economic policies must contribute to avoiding a situation which would subsequently require painful adjustment. For this purpose, a wide range of national economic policies is available - such as fiscal adjustment, appropriate wage setting, structural reforms and competition policy. Making use of them is not only in the interest of the euro area, but also to the benefit of the individual country itself.","To sum up, a single monetary policy for a group of 12 countries can function smoothly. Looking back over the first two and half years since the start of the single monetary policy, there can be no doubt that macroeconomic developments in the euro area have been very favourable. Divergences within the euro area are likely also to exist in future. For the euro area to function smoothly, however, well-balanced national economic policies should complement the single monetary policy with its primary objective of maintaining price stability in the euro area as a whole.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by Mr. Reynders, President of the EU Council, and Mr. Solbes from the European Commission.","As usual, we conducted our regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. The Governing Council decided to keep the key ECB interest rates unchanged. It considers that the current monetary policy stance remains appropriate and should bring inflation back in line with price stability in the medium term. Maintaining a favourable perspective for price stability is the best contribution monetary policy can make to fostering economic growth over the long run.","Let me elaborate somewhat on our assessment of the information provided under the two pillars of the ECB's monetary policy strategy.","Regarding the first pillar, the three-month average of the annual growth rates of M3 (adjusted for non-residents' holdings of money market fund shares/units) stood at 4.9% in the period from March to May 2001. As indicated previously, there is some evidence that M3 is currently distorted upwards by holdings of money market paper and short-term debt securities of non-euro area residents. Taking this into account, the three-month moving average of M3 in the period from March to May 2001 was broadly in line with the reference value of 4 1/2%. In addition, over recent months, the annual growth rate of credit to the private sector in the euro area has continued to moderate.","Concerning the second pillar, given the circumstances, it seems particularly important to recall the forward-looking nature of our assessment. At the current juncture economic developments appear to be particularly influenced by special factors. HICP inflation is still high at present, mainly reflecting past trends in energy and food prices. However, given the nature of these shocks and taking into account the present monetary policy stance, we expect them to have only a temporary effect on inflation rates. If no further unfavourable shocks occur, it is likely that annual rates of inflation will start to fall and reach rates of below 2% in 2002 - although the decrease from current levels over the months to come may be subject to some volatility. The main risk related to this outlook concerns second-round effects having an impact on wage negotiations this year and early next. As has been said on previous occasions, when looking back, the wage developments seen so far have been satisfactory, while, when looking to the future, there is ongoing concern.","As has now been confirmed, overall economic growth in the euro area moderated substantially in early 2001 and both survey and confidence indicators suggest a pattern of continued growth moderation for the second quarter of the year. These developments appear to be related to the less favourable external environment as well as to the weak growth of domestic demand. The latter reflects the adverse effects on income and consumption from past increases in energy and food prices and the slowdown in investment. However, in the course of the year, domestic demand should gradually recover from adverse price effects, given the sound economic fundamentals of the euro area, previous and ongoing tax reforms and favourable financing conditions. Average real GDP growth in the euro area is therefore expected to remain broadly in line with trend potential growth in 2001 and 2002.","Overall, our current policy stance should ensure price stability in the medium term. Of course, we shall continue to monitor closely future developments affecting the balance of risks to price stability, including - in particular - monetary developments, real GDP growth, price-setting behaviour and wage developments.","As I said earlier, at a point in time when economic developments are being affected by a number of special factors, the Governing Council would like to stress its medium-term and forward-looking perspective. Monetary policy will ensure a stance consistent with price stability over the medium term. Keeping firmly to this commitment has favourable effects on the economy as a whole. Since the start of Monetary Union, monetary policy has been successful in maintaining low inflationary expectations over the medium term. As a consequence, the euro area enjoys low long-term interest rates which are conducive to both economic growth and employment creation. A factor facilitating the maintenance of price stability will be continued wage moderation. Such moderation will help employment growth and thereby foster consumer confidence and domestic demand in the period ahead.","In addition, the prospects for non-inflationary economic growth can be significantly enhanced by decisive structural reform. Delays in introducing such reforms on the basis of cyclical considerations would be at the expense of medium-term growth opportunities.","A medium-term perspective is also most warranted for the conduct of fiscal policies in the euro area member countries. For all euro area countries, it is of crucial importance to fulfil in a credible manner the commitments made under the Stability and Growth Pact and those laid down in the context of the stability programmes.","Let me now give the floor to the Vice-President, who will inform you about some other issues.","Let me first refer to the current discussion on the potential impact on prices of the euro cash changeover. In general, price transparency and market competition are likely to limit inflationary pressures from the cash changeover. As regards administered prices, the finance ministers forming the Eurogroup have pledged that \"overall, the conversion into euro of all prices, charges and fees administered by their governments will be price neutral or smoothed in favour of the consumer\". The Governing Council calls on governments at other levels and enterprises to follow this example set by central governments. Moreover, the ECB calls upon the public's vigilance in monitoring prices and price changes, encouraging consumer and other organisations to actively engage in this task.","Second, I should like to inform you that the Governing Council has decided that euro area national central banks may frontload euro banknotes to central banks outside the euro area as from 1 December 2001. This measure is aimed at contributing to a smooth cash changeover in 2002. You will find further information relating to this decision in a separate press release to be issued this afternoon.","Third, as you are aware, the Governing Council paid particular attention to the specific needs of the blind and partially sighted when agreeing on the design of euro banknotes. To that end, several features have been incorporated into both the banknotes and the coins. In order to further assist visually handicapped citizens in recognising the euro banknotes and coins, and to help them to distinguish between the various denominations, the Governing Council decided to allocate about EUR 1 million to the production of 400,000 specially designed cash-testing devices. These will be made available via the network of the European Blind Union.","Finally, the Governing Council has adopted a Decision amending the Decision on the adoption of the Conditions of Employment for Staff of the European Central Bank. This Decision will be published in the Official Journal of the European Communities.","We are now at your disposal for questions.","Ladies and gentlemen, I am here to report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by Mr. Reynders, President of the EU Council, and Mr. Solbes from the European Commission.","Following its regular examination of monetary and economic developments and analysis of their implications for the maintenance of price stability in the euro area, the Governing Council decided to lower the key ECB interest rates by 25 basis points. The Governing Council considers that the available evidence points to an improvement in the outlook for price developments. This is particularly apparent from the information under the second pillar of the ECB's monetary policy strategy, while that related to the first pillar remains consistent with a favourable outlook for price stability in the medium term.","Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.","With regard to the first pillar, the three-month average of the annual growth rates of M3 was 5.9% in the period from May to July 2001. However, this figure needs to be corrected for holdings of money market paper and short-term debt securities by non-residents of the euro area, which, according to preliminary estimates, have contributed around three-quarters of a percentage point to annual M3 growth.","The increase in the rate of growth of M3 over the past few months must be interpreted carefully. It reflects the relatively flat yield curve and the recent weakness in stock markets, both of which made the holding of short-term deposits and marketable paper included in M3 attractive. As it also reflects the fact that consumers needed a higher level of transaction balances to finance the past rise in energy and food prices, recent increases in M3 growth may be transitory and, hence, do not necessarily have implications for price stability in the medium term. In addition, the annual rate of growth of loans to the private sector, although still high, has continued to decline over recent months.","Regarding the second pillar, there are clear signals of lower inflationary pressures from the demand side. Recent data on economic activity indicate that real GDP growth in 2001 will most likely be lower than was expected a few months ago. This is due in part to external demand, which has remained weak and below expectations, owing to slow growth in economic activity in the United States and persistent economic weakness in Japan, which have spilled over to other regions of the world. In addition, consumption growth in the euro area has been dampened by losses in real disposable income related to past increases in consumer prices. All these factors also had a negative impact on investment.","This notwithstanding, over time, the expected decline in consumer price inflation, to which the strengthening of the exchange rate has contributed, should support the growth of domestic demand. Further positive effects on euro area economic growth should stem from the full impact of tax reductions in several euro area countries and from the fact that financing conditions in the euro area are favourable.","A concern with regard to the outlook for price stability in the coming years has been the possible emergence of second-round effects, via wages, of past increases in consumer price inflation. The information available shows that wage moderation prevailed in the first quarter of 2001. It is essential that this trend continues and, at the current juncture, two factors support the view that this should indeed be the case. First, the slowdown in economic activity which I just mentioned may contribute to containing inflationary pressure stemming from the labour market. Second, there are encouraging signs, such as those coming from data on consumer and producer prices, which confirm that the increase in consumer price inflation was temporary and that, in the absence of further unfavourable shocks, it is likely that price stability will be restored in the not too distant future. The downward movement in import prices which has gradually been taking place over the past few months should support this process. The falling trend in consumer price inflation will contribute to containing inflation expectations of economic agents, thereby influencing price and wage-setting behaviour. This view is confirmed by bond yields, which indicate that financial markets expect inflation developments to be well in line with price stability in the medium term.","Overall, as several indicators are pointing to an abatement of inflationary pressures, the new level of interest rates is compatible with the maintenance of price stability over the medium term, which, in turn, is essential to create a favourable environment for sustainable economic growth.","At this juncture, I should like to express concern about the impact that slower growth may have on the determination of the governments of some countries to adhere strictly to the Stability and Growth Pact in the context of their existing stability programmes. Under the present circumstances, the automatic stabilisers should only be allowed to work fully in those countries whose budget positions are close to balance or in surplus. Let me emphasise that a medium-term perspective is essential for the conduct of fiscal policies in all euro area countries. Short-term discretionary measures aimed at strengthening domestic demand risk having an unwelcome impact on the economy, not least on account of time lags. In addition, if such measures are not consistent with the Pact, they may undermine the credibility of the consolidation process.","In their efforts to set the conditions for further expanding the production potential of the euro area, governments should also give more impetus to the implementation of structural reforms. Selective fiscal reforms, including those related to pension reforms, should provide the correct incentives to economic agents. Labour and product market reforms will be beneficial to employment growth in the euro area and improve the resilience of the euro area economy to adverse shocks in the future.","Finally, I should like to draw your attention to a press release that was issued today on the ECB Decision on the denominations, specifications, reproduction, exchange and withdrawal of euro banknotes.","I am now at your disposal for questions. After this question and answer session we will proceed with the unveiling of the security features of the euro banknotes and the launch of the Euro 2002 Information Campaign.","Ladies and gentlemen, the Governing Council of the European Central Bank met today for the fourth time outside Frankfurt. Let me first of all thank our host, Governor Liebscher, and the staff of the Oesterreichische Nationalbank, for the invitation to Vienna and for the generous hospitality offered to us.","As usual, the Governing Council conducted its examination of monetary and economic developments and analysis of their implications for the maintenance of price stability in the euro area. Based on its assessment under both the first and second pillar, the Governing Council decided to keep the key ECB interest rates unchanged. The level of the key ECB interest rates at the current juncture is therefore seen as consistent with maintaining price stability over the medium term. Given the high level of uncertainty in the international environment, we will continue to monitor developments very closely and thoroughly, and we will assess new information in the context of our medium-term-oriented monetary policy strategy aimed at delivering price stability in the euro area.","Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.","Looking at the first pillar, we have seen a strong increase in M3 growth over the past few months. However, a number of temporary factors play an important role in explaining recent monetary developments. Notably the uncertainty in stock markets and the relatively flat yield curve until August have led to portfolio shifts by private investors from longer-term assets to short-term assets included in M3. Furthermore, the growth of credit to the private sector continued to slow down in August. For these reasons, we do not judge that monetary developments signal risks to price stability at this juncture. This notwithstanding, the developments of M3 will have to be monitored carefully in the coming months.","As regards the second pillar, the assessment is currently surrounded by a particularly high degree of uncertainty. This concerns in particular the international environment. Last month's terrorist attacks had a negative impact on economic activity and confidence, which could delay the resumption of higher economic growth. Against this background, it was important that policy-makers in the United States, the euro area and in other countries around the world acted with measures to support confidence. A further positive feature is the recent fall in oil prices, which should be helpful in containing inflationary pressure and supporting the real disposable income of households, thereby sustaining consumption in many countries.","With regard to economic growth in the euro area, it would be premature to offer a firm assessment of the macroeconomic impact of the tragic events in the United States and current activities to combat global terrorism. At present, there are no major imbalances in the euro area which would require a longer-term adjustment process. On account of policies aimed at price stability, fiscal consolidation, wage moderation and structural reform, the euro area fundamentals remain very positive. Financing conditions are favourable and inflation is declining. The mere existence of the euro has sheltered the countries of the euro area from adverse intra-European exchange rate tensions, which had typically plagued many countries when external shocks occurred in the past. Taken together, all these elements should provide a much better base than in the past for a recovery in the course of next year once the initial shock has been absorbed. However, notwithstanding all these positive aspects, we will continue to monitor downside risks to the current situation.","Against this background, we are confident that inflation in the euro area will continue to decline to a level consistent with price stability. Receding external price pressures, combined with the expected continuation of wage moderation, underpin this expectation.","For the time being, we thus see a confirmation of our earlier assessment, which led us to reduce the key ECB interest rates by 50 basis points on 17 September. In fact, the recent events strengthened tendencies towards lower rates of inflation that were already prevailing before. Given their nature and their expected economic consequences, the terrorist attacks clearly warranted a prompt, flexible and appropriate response by the Governing Council, in the context of the medium-term-oriented monetary policy strategy of the ECB.","Regarding fiscal policies, there have been very encouraging signs of firm fiscal consolidation in a significant number of euro area Member States over past years, whereas, in a few other countries, progress towards balanced fiscal positions has been slower. It is natural for an economic slowdown to have adverse effects on member countries' budget positions, and there is no need for immediate countervailing actions. However, a short-lived slowdown should not drastically change the scope for reaching the targets set in the countries' stability programmes. For countries with a budget position still not close to balance or in surplus it is important to adhere to their medium-term consolidation plans.","Turning to the long-term prospects, in order to raise the rate of potential economic growth in the euro area, structural reforms in the size and composition of public revenue and expenditure, as well as in product and labour markets, have to continue. Advances have been made in times of high real GDP growth, although in many areas, including in labour markets, more could have been achieved. As adjustment needs are likely to become more visible in periods of less vigorous economic growth, policy-makers must now intensify the acceleration of reforms rather than allow efforts to abate. Moving forward the reform agenda decisively will enable the euro area economy to respond flexibly in future and thereby underpin our confidence that external shocks can be more easily absorbed than in the past.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted a comprehensive and in-depth examination of monetary and economic developments. Against the background of the available evidence, it analysed the implications for the maintenance of price stability in the euro area, taking a forward-looking and medium-term perspective. As a result, the Governing Council decided to lower the key ECB interest rates by 50 basis points. At this new level, the key ECB interest rates continue to be appropriate to ensure a favourable outlook for price stability over the medium term.","In assessing the information which has accumulated over the past few weeks we concluded that inflationary pressures have further diminished. This was particularly apparent from the information under the second pillar of the ECB's monetary policy strategy, while information relating to the first pillar was also judged consistent with today's decision. The Governing Council considered today's assessment to be in line with available forecasts and its view of economic developments in the period ahead. It is expecting these views to be broadly confirmed by further incoming information on the economic situation. The ECB will publish its own projections in the December issue of the Monthly Bulletin.","Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.","With regard to the first pillar, after having grown at a strong pace over the previous few months, M3 growth increased further in September. However, the recent evolution needs to be seen as a reflection of an increased liquidity preference of investors in an environment of a relatively flat yield curve until August, developments in global stock markets and a surge in financial market uncertainty following the terrorist attacks of 11 September. In addition, the growth of credit to the private sector has continued to decline over recent months. Overall, despite the acceleration in M3 growth, current monetary developments do not signal risks to price stability in the medium term. We will continue to closely examine the underlying dynamics of monetary growth.","Regarding the second pillar, much clearer signals of a further reduction of inflationary pressures from the demand side have accumulated over recent weeks. Euro area real GDP growth will be weak in the second half of 2001. This is to be seen against the background of the ongoing weakness of the world economy, which depresses the demand for euro area exports. As a consequence, and also taking into account the high degree of uncertainty following the terrorist attacks of 11 September, the current environment is likely to lead to delays in investment activity and, to some extent, also to negatively affect private consumption growth in the euro area. Real GDP growth in the euro area is expected to remain below potential growth also for part of next year.","Further ahead, however, the conditions exist for a recovery to take place in the course of 2002 and economic growth to return to a more satisfactory path. The uncertainty currently overshadowing the world economy should diminish, and there are no major imbalances in the euro area which would require longer-term adjustment. Economic policies in the euro area as a whole remain geared towards price stability, the objectives of the Stability and Growth Pact, wage moderation and structural reform. Further positive effects on economic growth should stem from the impact of tax reductions in several member countries and from the fact that financing conditions are favourable.","As regards the outlook for prices in the euro area, recent developments confirm our earlier expectation of a gradual decline in inflation rates, resulting from the unwinding of the previous increase in energy prices and the absence of further shocks to food prices. In addition, and crucial for the medium term, two factors support the view that wage developments are less of a risk than was previously the case. First, the slowdown in economic activity should contribute to containing inflationary pressure stemming from the labour market. Second, there is now sufficient evidence that the increase in consumer price inflation was temporary, and this will help to keep inflation expectations low. Looking forward, inflation rates over the next few months will probably show some volatility, on account of base effects resulting from previous price movements. However, such short-term fluctuations should not distract from the medium-term trend. We can now expect that price stability will be safely restored in 2002. This view is confirmed by bond yield developments, which are consistent with financial markets expecting inflation rates in the euro area to be clearly below 2% over the medium term.","Overall, as our assessment now points to a further abatement of inflationary pressures, this allowed us to reduce the key ECB interest rates by 50 basis points. This follows three previous interest rate reductions this year, bringing the total decrease to 150 basis points. The new level of interest rates is appropriate to maintain price stability over the medium term. This, in turn, will favour an environment conducive to restoring higher economic growth in the euro area. Interest rates across the entire yield curve are now very low by all measures and liquidity conditions are supportive to economic growth.","At this juncture, I should like to recall our position as regards the impact of slower economic growth on the euro area countries' fiscal positions. While it is natural for an economic slowdown to have adverse effects on Member States' budgets, it is important that especially those countries with a budget position still not close to balance or in surplus and/or with high public debt-to-GDP ratios adhere to their medium-term consolidation plans. The current slowdown should not substantially change the scope for reaching the medium-term commitments they made under the Stability and Growth Pact and in the context of their stability programmes. Let me again emphasise that a medium-term perspective and continuous consolidation are essential for the conduct of fiscal policy in all euro area countries. This would give a firm signal to investors and consumers, thereby supporting confidence and contributing to a recovery.","In their efforts to further expand the production potential of the euro area, governments should also give greater impetus to the implementation of structural reforms. Fiscal reforms, including those related to pension systems as well as to the level and composition of public revenue and expenditure, would provide the correct incentives. Labour and product market reforms will be beneficial to employment growth in the euro area and will improve the resilience of the euro area economy to adverse shocks in the future. While it may be perceived as more difficult to advance in these areas in an environment of weaker economic activity, the need to properly address rigidities should be much more obvious now than at times of buoyant growth. The current weakness should therefore be taken as a challenge to be met by stepping up reforms rather than allowing efforts to abate.","Finally, I would like to inform you that the Governing Council has decided that, as from today, it will – as a rule – assess the stance of the ECB's monetary policy only at its first meeting of the month. Accordingly, interest rate decisions will normally be taken during that meeting.","At the second meeting of the month, the Governing Council will deal for the most part with issues related to other tasks and responsibilities of the ECB and the Eurosystem. After the second meeting of the month, a press release on the ECB's monetary policy decisions will no longer be issued. Obviously, if warranted by the circumstances, the Governing Council can still decide to change the key ECB interest rates at any time, regardless of previously scheduled meetings (as was recently demonstrated by the decision to lower interest rates on 17 September 2001).","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council conducted a comprehensive examination of recent monetary and economic developments in order to assess the prospects for the maintenance of price stability in the euro area over the medium term. It concluded that the information which has become available since the Governing Council meeting of 8 November confirmed our expectations and thereby also the forward-looking decisions taken over the past few months by the Governing Council. Against this background, the Governing Council decided to keep the key ECB interest rates unchanged. The Governing Council continues to consider the current level of key ECB interest rates appropriate.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 rose to 6.8% in the period from August to October 2001. This was significantly above the medium-term reference value for annual M3 growth of 4 ½%.","We confirmed this value of 4 ½% today in our annual review of the reference value. This decision was taken on the grounds that the evidence continues to support the medium-term assumptions underlying the derivation of the reference value, namely those for trend potential output growth of 2-2 ½% per annum and for a trend decline in M3 income velocity of ½-1% per annum in the euro area. We will issue a separate press release today providing further background to the confirmation of the reference value.","In comparing current developments with the reference value we have to keep in mind that the reference value is a medium-term concept. Short-run movements of M3 may stem from a number of temporary factors and do not necessarily have implications for future price developments. For this reason the Governing Council made it clear already in 1998 that the announcement of the reference value does not entail a commitment on the part of the ECB to correct mechanistically deviations of monetary growth from the reference value. Rather, developments of M3 are thoroughly analysed by the ECB, in conjunction with other monetary indicators and information from the second pillar, in order to ascertain their implications for the risks to price stability over the medium term.","The recent strong M3 growth confirmed our previous assessment that, in the phase of relatively high financial market uncertainty after the terrorist attacks on the United States, investors have shifted their portfolios towards liquid and relatively safe short-term assets included in M3. Such shifts should be temporary and should not be seen as indicating future inflationary pressures. This assessment of current monetary developments is also underpinned by the fact that credit growth to the private sector has been continuously falling over recent months. However, we will need to continue analysing developments in M3 closely. Should the current economic and financial market uncertainties subside, any persisting excess liquidity in the economy should be carefully reassessed with respect to whether it signals risks to price stability.","Regarding the second pillar, recent information confirmed our earlier assessment that economic activity in the euro area has been weak in the second half of 2001 and will probably remain so in early 2002. This reflects the lower export demand resulting from the current slowdown in global economic activity and the fact that consumption and investment decisions in the euro area are being adversely affected by the current climate of economic uncertainty. However, the conditions are there for economic growth to improve in the course of 2002. There are no major imbalances in the euro area which would require a lengthy correction process. At the same time, financing conditions are very favourable in the euro area. Furthermore, the recent fall in oil prices and, more generally, the expected further decline in consumer price inflation will lead to higher growth in real disposable income and should thereby support domestic demand. Developments in financial markets over the past few weeks signal a more optimistic assessment by market participants of the economic growth prospects in the euro area. All available forecasts indicate an improvement of the euro area economy in the course of next year.","In the current economic environment we should not expect medium-term upward pressures on inflation. The need to sustain employment growth in an environment of price stability will call for a continuation of the process of wage moderation.","In the coming months, movements in annual inflation rates may be somewhat erratic on account of base effects relating to the relatively volatile pattern of price increases in late 2000 and early 2001. However, annual inflation rates are clearly on a downward trend and, barring any unforeseen volatility in components of the HICP, they should fall to safely below 2% next year.","At the current juncture, it is important that fiscal policies maintain a medium-term orientation in order to support the credibility of the Stability and Growth Pact, thereby strengthening the confidence of consumers and investors. Government budget balances in 2001 are, on average for the euro area as a whole, expected to worsen for the first time since 1993, owing to the macroeconomic slowdown and the lack of expenditure restraint in countries which implemented significant tax cuts. The current slowdown presents a particular challenge for countries which have not yet attained budgetary positions close to balance or in surplus or which have high public debt-to-GDP ratios. Countries without structural fiscal imbalances can contribute to macroeconomic stability by letting automatic stabilisers fully operate. However, there is no case for fiscal activism, as this has often proven ineffective in the past and risks reintroducing imbalances.","A key remaining challenge for the euro area is to strengthen the productive forces in the economy by providing the proper incentives for economic agents. The Governing Council believes that the potential upward impact on trend output growth from structural reforms and technological innovation could be large. However, while some progress has been made in the field of structural reform, significant further steps – especially in the labour and goods markets – need to be taken in order to achieve a permanent and significant increase in potential output growth in the euro area. Furthermore, in the fiscal area, governments should pursue determined structural expenditure reforms in order to create room for further tax cuts, and for absorbing the fiscal costs associated with the ageing of populations. Such reforms would enhance the effectiveness of the fiscal environment in supporting employment, investment and economic dynamism.","Finally, let me say a few words on the forthcoming cash changeover. First of all, owing to the careful preparations by both the Eurosystem and the other parties involved in the logistics, the changeover is well on track. I gratefully acknowledge the efforts of all the staff of the Eurosystem as well as of banks, retailers, cash-in-transit companies, the vending machine industry and all others who are working hard to make this changeover a success. In economic terms, we expect the cash changeover to have no noticeable direct effects on the average price level in the euro area. This is largely due to the vigilance of consumers and the strong competition in the retail sector, but also reflects the commitment of governments not to increase the average level of administered prices in the context of the cash changeover. In addition, the effects of the cash changeover on M3 growth should remain very limited. Although we have seen a significant decline in currency in circulation over recent months, currency only represents a small fraction of M3 and a large part of its decline has been reflected in higher holdings of short-term deposits with banks. As regards liquidity in the euro area money market, the Eurosystem's operational framework will facilitate a successful cash changeover, as it ensures maximum flexibility in the implementation of monetary policy. Lastly, the model chosen by the Eurosystem to debit the banks for the frontloaded euro cash will help to smooth this process: the banks will not be debited on one single date, but rather one-third at a time on the settlement dates of the main refinancing operations on 2, 23 and 30 January. To conclude, we expect this event to run smoothly and look forward to a good start to the relationship between European citizens and their new currency.","Let me now give the floor to the Vice-President, who will inform you about some other issues addressed by the Governing Council.","First, I should like to mention that tomorrow the third seminar with high-ranking officials from the central banks of the EU accession countries will be held in Berlin. The seminar, organised by the ECB in co-operation with the Deutsche Bundesbank, will focus in particular on the structures and functioning of the financial sector in the accession countries. It will be followed by a press conference scheduled to begin at 4 p.m. tomorrow.","Second, the ECB budget for 2002 has been approved. It includes a staff increase of about 3%, which will bring the number of ECB staff members to slightly below 1,150 by the end of 2002.","Third, the Governing Council has adopted Decisions on the issue of euro banknotes and the allocation of monetary income. These two Decisions and a related press release will be published in all 11 official Community languages on the ECB's website this afternoon.","Finally, as the euro banknotes and coins will become a reality for all citizens of the euro area in less than one month, I should like to invite you to join the ECB for a special event in Frankfurt on the eve of the introduction of the euro banknotes and coins. During the morning of 31 December the President of the ECB will award prizes to the 24 children, two from each euro area country, who are the winners of the \"Be a Euro SuperStar\" competition. This competition, which was organised by the ECB and the 12 national central banks of the euro area, attracted more than 300,000 entries.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the President of the ECOFIN Council, Mr. Rato, as well as by Commissioner Solbes.","As usual, we examined recent monetary, financial and economic developments. The Governing Council concluded that recent developments are in line with the interest rate decisions taken in the course of last year. We have therefore decided to keep the key ECB interest rates unchanged. We also confirmed that the current level of key ECB interest rates remains appropriate for the maintenance of price stability over the medium term.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 rose to 7.4% in the period from September to November 2001, from 6.7% in the period from August to October. These high levels of the growth rate of M3 over the past few months reflect a particularly marked preference for liquid holdings by euro area investors in an economic and financial environment characterised by exceptionally high uncertainty worldwide. However, this should remain a temporary phenomenon which does not indicate future inflationary pressures. This judgement notwithstanding, the continued acceleration of M3 and the ongoing process of building up liquidity will require a thorough analysis of monetary developments in the months to come.","Regarding the second pillar, recent information has confirmed our earlier assessment that economic activity in the euro area was weak in the second half of 2001 and will probably remain so in early 2002. However, there are signs which point to a gradual recovery in the course of this year, as reflected, for example, in financial market developments or in recent survey data which indicate that the decline in confidence may have bottomed out. There are no fundamental imbalances which would require a longer correction process, and the general positive conditions for an improvement in economic activity remain in place. Financing conditions, in particular, are very favourable, and the expected further decline in consumer price inflation will lead to higher growth in real disposable income which should support domestic demand. All in all, available data remain in line with a recovery of the euro area economy this year, while the timing and strength of this upturn remain uncertain. Continued close monitoring of further incoming information is thus warranted.","In the current economic environment we do not expect medium-term upward pressures on inflation. However, as has been stated several times in the past, annual inflation rates for the months to come may be somewhat erratic on account of base effects as a consequence of the unwinding of past increases in energy prices and, albeit to a lesser extent, in food prices. In this connection, the possibility of some short-lived upward movements in the annual rate of inflation cannot be ruled out, but this should not be a cause for concern. Likewise, downward shifts resulting from such base effects later in the spring should not signal a change in the longer-term outlook for price stability. As regards the cash changeover, we do not expect any noticeable effect on the price level, largely due to strong competition in the retail sector, continued awareness on the part of consumers and the commitment of governments not to increase the average level of administered prices; however, we will of course remain vigilant.","Beyond short-term developments, we expect that wage moderation in the euro area will continue and that demand pressure on prices will remain subdued, although there are some grounds for concern about forthcoming wage negotiations. It is therefore particularly important to point to the indispensable role of continued wage moderation in fostering employment and maintaining a favourable outlook for price stability. On the basis of current information, annual inflation rates should fall safely below 2% this year and thereafter remain at levels consistent with price stability over the foreseeable future. Any factor which might alter this assessment in either direction will be carefully examined.","Let me also stress today how important it is for fiscal policies to maintain a medium-term orientation within the framework of the Stability and Growth Pact. The current weakness in economic growth undoubtedly presents a particular challenge for those countries which have not yet attained budgetary positions close to balance or in surplus or which have high public debt-to-GDP ratios. However, rather than being detrimental to a return to sustainable economic growth, their adherence to their medium-term objectives will strengthen consumer and investor confidence. Countries without fiscal imbalances can, of course, allow automatic stabilisers to operate fully. That said, however, there is no case for fiscal activism.","Finally, I should like to reiterate our views on structural reform – particularly following the successful introduction of the euro banknotes and coins. The key challenge for the euro area, now more than ever, is to continue to strengthen the forces of production and expand the trend output growth of the economy in a decisive manner. This will require a deepening of structural reform in the labour and goods markets, as well as technological innovation. Likewise, governments should pursue determined reforms with regard to the size and structure of public expenditure and revenue, also in order to create room for further tax cuts and to absorb the fiscal costs of population ageing. Together with continued wage moderation aimed at sustaining recent labour market gains, these reforms will foster employment and investment.","With the ECB pursuing its primary objective of price stability, with governments willing to foster structural reforms and conduct stability-oriented fiscal policies, and with wage developments consistent with job creation and price stability, the euro – which is now also available in the form of banknotes and coins – will represent an economic area characterised by macroeconomic stability and economic dynamism.","We are now at your disposal for questions.","Ladies and gentlemen, as the Treaty on European Union was signed in Maastricht exactly ten years ago today, it was decided that it would be fitting to hold the fifth meeting of the Governing Council of the ECB outside Frankfurt here in this city in order to mark the tenth anniversary of what has become known as the \"Maastricht Treaty\". Indeed, the Governing Council today met in the same rooms in which the Heads of State and Government successfully concluded the Treaty negotiations. I should like to thank Governor Wellink, the Queen's Commissioner in the Province of Limburg, the staff of de Nederlandsche Bank and the city of Maastricht for their hospitality and for the outstanding way in which the meeting has been organised.","When the Maastricht Treaty was signed, many doubted whether Economic and Monetary Union (EMU) would ever amount to more than the solemn words of a Treaty or a laudable objective to be reached at some point in the distant future. However, during the 1990s, policy-makers, governments, central bankers and other political and economic agents showed great resolve and determination to ensure that the single currency would become a reality. Today, we can look back on a period of more than three years in which the ECB has successfully pursued a stability-oriented single monetary policy serving more than 300 million citizens. And we all have the tangible proof of Monetary Union in our pockets, following a highly successful cash changeover process which represents another historic milestone in the process of European monetary integration. Indeed, already now the level of cash payments in euro is close to 100% in all the countries of the euro area. This means that the cash changeover can be considered as good as complete, i.e. well before 28 February, after which date the legacy currencies of the euro will no longer be legal tender in any euro area country.","Together with the Treaties founding the European Communities, the Maastricht Treaty is one of the most important and visionary legal texts in the history of the European integration process. With the euro, the Treaty offered tangible proof of what the vision of European Union is about, namely bringing the people of Europe closer together and ultimately facilitating their lives. Having been instrumental in laying the foundations for the euro, the Maastricht Treaty will remain vital and indispensable for the successful functioning of EMU. The medium-term macroeconomic policy framework laid down in the Maastricht Treaty has contributed to a stable macroeconomic environment, and will continue to do so. In addition, the Treaty provides for a clear allocation of responsibilities between EU institutions and Member States, as well as clear mandates for all involved. The maintenance of price stability – the ECB's primary objective –, the independence of the Eurosystem and the provisions safeguarding fiscal discipline, in particular as enshrined in the Stability and Growth Pact, are among the hallmarks of this framework. Furthermore, the path towards participation in the euro area mapped out in the Maastricht Treaty, focusing on sustainable economic convergence as a prerequisite for adoption of the euro, will also serve to guide prospective Member States. The name Maastricht will therefore always be connected with the euro and will forever have a prominent place in the history of Europe.","Let me now turn to our regular examination of recent monetary, financial and economic developments. The Governing Council concluded today that there was no reason to change its previous assessment. Accordingly, the key ECB interest rates were kept unchanged at a level which remains appropriate for the maintenance of price stability over the medium term.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 rose to 7.8% in the period from October to December 2001, from 7.4% in the period from September to November. The Governing Council considers that monetary developments thus far do not indicate risks to price stability. The build-up in liquidity reflected in these data occurred in an economic and financial environment characterised by exceptionally high uncertainty worldwide and should therefore be only temporary. This assessment of low inflationary risks is also supported by the declining trend in the growth rate of loans to the private sector. However, a continuation of strong M3 growth could call for a reassessment of monetary developments, especially if there is further evidence of a recovery in the euro area economy.","Regarding the second pillar, while actual euro area production growth in the fourth quarter of last year and in the early part of this year is still expected to be subdued, new data confirm our expectation of a gradual improvement in economic activity in the course of the year. Uncertainty as regards the global environment seems to be gradually decreasing. In the euro area, the economic fundamentals remain sound and financing conditions favourable. Together with higher growth in real income, stemming from the past and future declines in inflation, these factors should support overall demand. This assessment appears to be reflected both in recent improvements in survey data and in financial market developments. Although the timing and strength of the upturn remain uncertain, the overall evidence points to a resumption of economic growth.","We also continue to expect no medium-term upward pressures on inflation. However, as already indicated on several occasions, annual inflation rates at the beginning of this year will be somewhat erratic. Preliminary HICP data for January 2002 confirm this expectation but should not give rise to concerns as regards the medium term. The recent increase in inflation was to a large extent due to exceptional and short-lived factors – such as particularly adverse weather conditions in some parts of the euro area, which led to increases in food prices – as well as to the anticipated influences of indirect taxes and base effects resulting from developments in energy prices. Taking these factors into account, there is no evidence so far of a significant impact on the price level as a result of the euro cash changeover. Nor do we expect substantial effects in the months to come. There is reason to assume that the physical introduction of the euro banknotes and coins will strengthen competition, thereby supporting the maintenance of price stability.","Beyond the short term, the outlook for inflation remains favourable. One important concern, however, relates to forthcoming wage negotiations. If wage moderation is maintained, as we currently expect and in any case consider warranted in order to foster employment growth, and assuming that other determining factors also develop favourably, annual inflation rates should fall safely below 2% this year. They should also remain at levels consistent with price stability.","Finally, let me underline the importance which the Governing Council attaches to the Stability and Growth Pact and its strengthening through diligent implementation of the appropriate procedures. The responsibility for these procedures lies with the European Commission and the ministers of finance. The Governing Council fully supports all steps to avoid the occurrence of excessive deficits and all efforts to reduce the public debt and bring the fiscal stance into line with the stability programmes in individual member countries in order to ensure the credibility of the commitments made under the Stability and Growth Pact. In the same vein, we very much support the continued initiatives to foster structural reform. We welcome the focus placed on these issues in the context of the forthcoming Barcelona summit and we are looking forward to swift and determined delivery of essential structural reforms in the goods, services and labour markets to promote the euro area's growth potential.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","First of all, we were pleased to see that the euro cash changeover went so smoothly – more smoothly in fact than we could have hoped. The European public very quickly became familiar with the new banknotes and coins, as is shown by the fact that national banknotes were largely withdrawn well before the final deadline of their ceasing to be legal tender. The Governing Council wishes to express its gratitude once more to all those who helped to make the euro cash changeover such a success.","As usual, at today's meeting we examined recent monetary, financial and economic developments. The Governing Council concluded that the information which had become available in recent weeks confirmed that the current level of key ECB interest rates remains appropriate for the maintenance of price stability over the medium term. Against this background, the Governing Council decided to leave the key ECB interest rates unchanged.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 stood at 8.0% in the period from November 2001 to January 2002, compared with 7.8% in the period from October to December 2001. The high level of the annual growth rates of M3 is very much related to portfolio shifts to liquid positions, most of which occurred in the autumn of 2001 in an economic and financial environment characterised by high uncertainty. While many investors still seemed to be \"parking\" some of their assets in M3 in early 2002, some moderation in the short-term dynamics of M3 could be observed around the turn of the year.","The Governing Council continues to hold the view that the information from the first pillar thus far does not indicate risks to price stability, as the portfolio reallocations which drove M3 growth in 2001 should remain temporary. In addition, the slowdown in the rate of growth of loans to the private sector has been continuing over the past few months. However, we will need to analyse monetary developments closely in the coming months.","As regards the second pillar, there are further signs that the trough in economic activity may have been reached at the end of last year. Coincident and forward-looking indicators increasingly point to improvements in economic conditions. A similar picture is reflected in financial market expectations, especially those embedded in bond yields.","The economic fundamentals of the euro area are sound and there are no major imbalances that would require a lengthy process of adjustment. The expectation of a recovery in the euro area in 2002 is furthermore supported by favourable financing conditions and by real disposable income benefiting from past and expected future declines in inflation. There is also increasing confirmation that economic activity outside the euro area is picking up, which should lead to a gradual strengthening of the external demand for euro area products and services. While the strength of the recovery remains uncertain, there are good reasons to expect a return of economic growth to levels in line with potential towards the end of the year.","Turning to short-term price developments, annual consumer price inflation picked up substantially in January. Part of this increase was expected, as it related to base effects stemming from falling energy prices in early 2001 and to higher indirect taxes in some euro area countries. Furthermore, the increase reflected a considerable rise in unprocessed food prices due to adverse weather conditions in parts of Europe. Part of the latter effect seems to have been reversed in the meantime, as preliminary data for February indicate. Some increases have also been observed in oil prices and in the rate of growth of services prices in January. While there might have been an impact on specific service categories in January, overall there is no evidence that the euro cash changeover has had a significant upward effect on the average price level in the euro area or that the declining trend in annual inflation rates has been affected recently.","In the coming months, the effects of past increases in energy and food prices should gradually subside and annual inflation rates should fall to below 2%. The recent behaviour of producer prices also points in this direction. Beyond that horizon, we expect little upward pressure on prices from aggregate demand and, barring unforeseen developments, inflation rates to be in line with price stability.","However, the current favourable outlook for inflation fundamentally rests on the assumption of a continuation of wage moderation. As I already noted last month, there is some cause for concern with regard to ongoing wage negotiations. A continuation of wage moderation in the euro area is crucial not only to foster employment growth but also to support monetary policy in its task to maintain price stability.","With regard to fiscal policy in the euro area, the Governing Council welcomes the reaffirmed commitments of the governments of euro area countries with fiscal imbalances to adhere to the objective of achieving balanced budgets by 2003-2004. The confirmation of the political will to continue along the path of fiscal consolidation is most appropriate. The Governing Council supports the actions taken by the European Commission in the context of the Stability and Growth Pact and the subsequent outcome of the ECOFIN Council meeting last month. It is now necessary to remain vigilant in order to ensure strict adherence to the medium-term plans and rigorous implementation of the procedures of the Stability and Growth Pact.","In order to further improve the fundamentals of the euro area and to put the expected recovery on a broad and sustainable basis, euro area countries must strengthen their efforts to implement comprehensive structural reforms. Over the past few years progress has been made with regard to enhancing the flexibility of euro area product and capital markets. Euro area countries have also made some headway in terms of improving the way their labour markets operate. These reforms, together with moderate wage developments, have contributed to the strong employment growth and the considerable reduction in unemployment witnessed in many euro area countries in the last cyclical upswing. However, it is worth noting that despite the continued high unemployment in the euro area, firms continue to report difficulties in terms of recruiting suitably qualified workers. This suggests that further improvements in the functioning of euro area labour markets and their ability to match labour supply and demand are needed. Evidence gathered in a recent Eurosystem analysis, which will be published shortly, supports this view. In this context I would also like to stress that structural reforms in different markets should not be seen in isolation. The more efficiently euro area product and capital markets function, the greater the success of labour market reforms will be in creating employment opportunities.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","As usual, we examined recent monetary, financial and economic developments. The Governing Council concluded that the current level of key ECB interest rates remains appropriate for the maintenance of price stability over the medium term and, accordingly, decided to leave them unchanged.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 stood at 7.8% in the period from December 2001 to February 2002, compared with 8.0% in the period from November 2001 to January 2002. The high level of the annual growth rates of M3 continues to reflect the past portfolio shifts to liquid positions. These shifts primarily occurred during autumn 2001, when the economic and financial environment was characterised by high uncertainty. However, in the meantime, some normalisation in the development of M3 has taken place. This is indicated by a significant slowdown in the short-term dynamics of M3 in early 2002, a period in which the annual rate of growth of loans to the private sector has also continued to decline. However, the period of moderation in monetary growth has as yet been too short to allow a definitive assessment.","Against this background, the Governing Council continues to hold the view that the information from the first pillar does not thus far point to risks to price stability. Nevertheless, the persistence of excess liquidity in the economy could become a concern once the economic recovery in the euro area gathers pace.","As regards the second pillar, the trough in economic activity was in all likelihood reached at the end of last year. Further information received over the past few weeks, i.e. surveys, financial market and leading indicators, strengthened the expectations of a recovery in the course of this year. While some uncertainty remains as regards the precise pattern of the recovery, not least in the context of a substantial increase in oil prices, the latest evidence has reinforced our previous assessment. Real GDP growth rates in the euro area should again be in line with potential growth later this year. Domestic factors support the recovery. First, a reversal of the past inventory drawdown is under way and real disposable income growth is expected to benefit from lower rates of inflation. Second, financing conditions are favourable. We also expect the stronger international environment to play an important role in stimulating euro area exports, and both domestic and external factors should foster investment. Finally, the positive outlook for the euro area economy is very much supported by sound fundamentals and the absence of major imbalances.","Turning to price developments, let me first recall that, over recent months, annual rates of consumer price inflation have been affected by several factors of a special or temporary nature. This volatile pattern was broadly anticipated. However, annual inflation rates are currently somewhat higher than was expected a few months ago, with early estimates for March pointing to a figure of 2.5%. This is mainly because oil prices have again risen significantly in the more recent period. If sustained, higher oil prices would also have an impact on inflation rates in the remainder of 2002. While inflation rates are expected to fall to below 2% later in the coming months, this decline may possibly be less pronounced than was foreseen, and inflation rates during this year could turn out to be somewhat higher than previously expected.","Beyond the shorter term, upward pressure on prices from aggregate demand should, in the light of current projections of a gradual economic recovery in the euro area, remain contained. In addition, the outlook for inflation is fundamentally dependent on wage moderation. Such moderation is important not only in order to contain risks to price stability but also to foster employment growth. As I have already noted on earlier occasions, there is some cause for concern with regard to ongoing wage negotiations.","Fiscal policies in the euro area can also contribute to the maintenance of a favourable outlook for non-inflationary growth. It is vital that the commitments made to achieving balanced budgets by 2003-04 be firmly followed up in the Member States concerned. A continuation along the path of fiscal consolidation is essential, as is vigilance in ensuring strict adherence to the medium-term plans and rigorous implementation of the procedures of the Stability and Growth Pact.","Equally, the expected recovery should be seen as an ideal opportunity to strengthen efforts towards implementing comprehensive structural reforms – in public expenditure and revenues and product, labour and financial markets. Heads of State and Government confirmed this objective during their recent meeting in Barcelona. If implemented vigorously, such reforms could increase the growth of real GDP and employment on a sustainable basis. Past improvements in the functioning of markets, together with wage moderation, have contributed to strong employment growth and a considerable reduction in unemployment. It is therefore clearly in the interest of all countries to continue to rigorously implement the agenda agreed in Lisbon and recently confirmed in Barcelona.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council comprehensively examined monetary, financial and economic developments and also considered the accumulated changes in the economic outlook since its decision to lower the key ECB interest rates in November 2001. We concluded that the prospects for price stability appear to be somewhat less favourable than they were towards the end of last year. At the same time, we recognised that the economic outlook remains subject to uncertainties and that price developments partly reflect the influence of specific temporary factors. Accordingly, we decided to leave the key ECB interest rates unchanged.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 decreased to 7.5% in the period from January to March 2002, down from 7.8% in the period from December 2001 to February 2002. The high annual growth rate of M3 continues to reflect the portfolio shifts to liquid positions which occurred last autumn. In the meantime there has been some normalisation in the development of M3, as indicated by the slowdown in its short-term dynamics in early 2002. The annual rate of growth of loans to the private sector also continued to decline in March. However, M3 growth has only slowed relatively recently and, for the time being, the reversal of built-up liquidity is proceeding only slowly.","As regards the second pillar, our expectations for a rebound in real GDP growth in the euro area have been confirmed by recently published forecasts of international organisations, which all paint a similar picture. While the recovery in 2002 is expected to initially proceed at a gradual pace, real GDP growth rates in the euro area should again be in line with potential growth later this year and solid growth rates should be attainable by 2003. Business confidence has considerably improved in the euro area over the past few months and the conditions for a sustained upswing in domestic demand continue to be in place, including favourable financing conditions. The more positive international environment should also help stimulate euro area exports, thereby fuelling aggregate demand in the euro area. Finally, sound fundamentals and the absence of major imbalances support the positive outlook for the euro area economy. However, there are still a number of uncertainties surrounding the strength of the current upswing, such as those related to the future development of oil prices and to the impact of existing imbalances elsewhere on the world economy","Turning to price developments, trends in inflation – with annual HICP increases of 2.7% in January falling to 2.2% in April, according to Eurostat's early estimate – have been less satisfactory than expected a few months ago, not least as a result of higher oil prices. As stated on previous occasions, price developments in both 2000 and 2001, and again in recent months, have been shaped by a sequence of adverse but rather specific shocks to prices. These should unwind sooner or later and, in principle, such shocks should not affect the medium-term outlook for price stability.","However, it is essential that past upward tendencies in prices – even though they partly resulted from a clustering of specific factors – do not become entrenched. Recently published forecasts of price developments in the euro area, developments in indicators of inflation expectations and recent trends in wage settlements neither clearly confirm nor entirely contradict the risk of such entrenchment. At this juncture, it is therefore particularly important to remain vigilant with regard to the further evolution of the key factors determining the outlook for prices.","On the basis of current information, it is still possible that annual HICP inflation rates will fall below 2% in the coming months. However, the outcome is highly dependent on oil price developments. The rather protracted upward trend in services prices is also a factor to be taken into account. For next year, projections for price developments depend largely on the assumption of continued wage moderation. The outcome of the ongoing wage negotiations in some regions of the euro area could become a matter of concern. Excessive wage increases could create additional cost pressure with potential consequences not only for prices but also – to an even greater extent – for employment creation and real GDP growth.","Regarding fiscal policies in the euro area, let me reiterate the views previously expressed. It is vital that those Member States that have not already done so manage the transition to budgetary positions in balance or in surplus so that the Stability and Growth Pact can operate smoothly and effectively in future. Commitments made to achieving balanced budgets by 2003-4 must therefore be honoured by the Member States concerned.","The Governing Council calls upon Member States to make faster progress in implementing comprehensive structural reforms – in public expenditure and revenues and product, labour and financial markets. The forthcoming finalisation of the Broad Economic Policy Guidelines for 2002 will be an opportunity both to take stock of the unfinished agenda following the agreements of Lisbon and, more recently, of Barcelona and, in particular, to accelerate the implementation of reforms. As we have said on numerous occasions, such reforms are needed to increase the growth of real GDP and employment on a sustainable basis. Past experiences both inside and outside the European Union indicate that measures to promote the efficiency and integration of markets, the encouragement of entrepreneurship and the fostering of a knowledge-based economy are clearly working in this direction and are thus in the interest of all member countries.","We are now at your disposal for questions.","Ladies and gentlemen, Mr. Papademos, the new Vice-President of the ECB, and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","The Governing Council undertook a comprehensive examination of monetary, financial and economic developments and considered the evidence that has become available since its last meeting on 2 May 2002. Notwithstanding the recent decline in inflation, the outlook for price stability in the medium term remains less satisfactory than expected a few months ago. However, the economic outlook is still subject to uncertainty. Further evidence is needed before we can fully assess the upward risks to price stability over the medium term. Against this background, the Governing Council decided to leave the key ECB interest rates unchanged.","Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 decreased to 7.4% in the period from February to April 2002, down from 7.6% in the period from January to March 2002. While the high annual growth rate of M3 still partly reflects the portfolio shifts to liquid positions which occurred last autumn, and there was some normalisation in the development of M3 in early 2002, this trend towards moderation has recently been interrupted. In addition, annual rates of growth of loans to the private sector have stabilised over recent months.","As regards the second pillar, our expectations for a gradual recovery in real GDP growth in the euro area have been confirmed by Eurostat's recently published first estimates for real GDP growth. These preliminary estimates show an improvement of quarter-on-quarter growth rates from -0.3% in the last quarter of 2001 to moderately positive rates in the first quarter of this year. Moreover, business and consumer confidence has strengthened again more recently, as reflected in the data published by the Commission. Looking ahead, available forecasts all point to a continued strengthening in both domestic and foreign demand, relating to a more favourable external environment, sound domestic fundamentals and the absence of major imbalances within the euro area. Overall, they suggest that real GDP growth in the euro area should again be in line with potential growth later this year, with a further increase expected in 2003. Despite this rather positive outlook, the assessment of the short-term dynamics of real activity is still surrounded by uncertainty. Moreover, future oil price developments and economic imbalances elsewhere in the world economy remain elements of risk.","Turning to price developments, Eurostat's early estimate indicates that annual HICP inflation fell from 2.4% in April to 2.0% in May. However, this decline is mainly due to a base effect relating to the spike in HICP inflation in May 2001. Moreover, in the first months of this year HICP inflation excluding the more volatile items of energy and unprocessed food prices has remained stubbornly high, reflecting in particular trends in services prices. While a further decline in the annual inflation rate is possible in the short run, the medium-term outlook remains less satisfactory than expected a few months ago. Over recent weeks the exchange rate of the euro has appreciated. This will contribute to containing inflationary pressures, but it is still too early to assess the impact of exchange rate developments on the outlook for prices","As stated on a number of occasions, the less satisfactory picture in the short term is due partly to a sequence of adverse but rather specific shocks to prices, including recent oil price increases. In principle, such shocks should unwind over time and therefore not affect the medium-term perspectives for price stability as long as past upward tendencies in prices do not become entrenched. The outcome of recent wage negotiations in some regions of the euro area is a cause for concern, especially in view of the negative impact this could have on continued employment creation. High wage increases must not spread across the euro area given that inflationary pressure, which would have unfavourable consequences for competitiveness, employment growth and consumption, is to be avoided.","At this juncture it is therefore particularly important for monetary policy to remain vigilant with regard to the further evolution of the key factors determining the outlook for prices.","Regarding fiscal policies in the euro area, it is vital that all Member States maintain a medium-term perspective in compliance with the framework of the Stability and Growth Pact. Maintaining such a perspective will lead to a successful transition to budgetary positions close to balance or in surplus and to a smooth functioning of automatic stabilisers in all member countries. Let me therefore reiterate that the Member States concerned must honour the commitments made to achieve balanced budgets by 2003-4. Moreover, governments are encouraged to push ahead with reforms relating to the size and structure of public expenditure and revenue, which will also create room for further tax cuts and absorb the fiscal costs of population ageing.","This reform agenda, as well as the urgent structural reforms relating to product, labour and financial markets, will be addressed in the forthcoming Broad Economic Policy Guidelines. Overall, such reforms reflect the key challenge for the euro area to expand its potential for non-inflationary growth and to reduce its high level of unemployment. The Governing Council calls upon Member States to make faster progress in accelerating and deepening structural reforms in order to provide economic agents with the proper incentives to enhance efficiency and entrepreneurship and to progress towards a knowledge-based economy as proclaimed in the Lisbon agenda and confirmed in Barcelona.","We are now at your disposal for questions.","Ladies and gentlemen, the Governing Council of the European Central Bank met today for the sixth time outside Frankfurt. First of all I would like to thank our host, Governor Mersch, and the staff of the Banque centrale du Luxembourg, for the invitation and for the generous hospitality offered to us. Allow me also to add that the Governing Council today held its 100th meeting since the establishment of the ECB on 1 June 1998. We have not celebrated this event in any specific way, but we are pleased to draw your attention to this fact. Finally, let me, on behalf of the entire Governing Council, pay tribute to Pierre Werner, who passed away a few days ago. He was one of the founding fathers of the single currency and for this we will always be grateful to him.","At today's meeting, the Governing Council continued its comprehensive examination of monetary, financial and economic developments and assessed new evidence that has become available over the past few weeks. Our conclusion was that while risks to price stability over the medium term remain tilted to the upside, recent evidence sends mixed signals. Against this background, the Governing Council decided to leave the key ECB interest rates unchanged.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 increased to 7.5% in the period from March to May 2002, from 7.4% in the period from February to April. While there was some normalisation of M3 growth in early 2002, M3 dynamics have strengthened again recently. This development may partly reflect renewed portfolio shifts into M3 instruments, related to the recent increase in overall financial market uncertainty. However, more fundamental factors, such as the low opportunity cost of holding money and the economic recovery in the euro area have also driven monetary expansion in recent months. In addition, the rate of growth of loans to the private sector has been recovering. While due caution in interpreting recent short-term monetary developments is warranted, it is a matter of concern that there is significantly more liquidity available in the euro area than would be needed to finance sustainable, non-inflationary economic growth.","Concerning the second pillar, the latest data confirm that a gradual recovery in real GDP growth in the euro area is under way. Information from several surveys and leading indicators for the second quarter of this year point to somewhat higher real GDP growth rates than in the first quarter. Looking ahead, an ongoing strengthening in both domestic and foreign demand continues to be the most likely scenario. The conditions for further recovery in the euro area remain in place. There are no major imbalances in the euro area and financing conditions are very favourable. At the same time, there is continued economic growth outside the euro area. However, in view of recent financial market developments, the uncertainty surrounding the strength of the economic upturn – both outside and inside the euro area – has not diminished over recent weeks.","Turning to price developments, Eurostat's flash estimate indicates that annual HICP inflation fell from 2.0% in May to 1.7% in June. However, it is too early to interpret this fall as a sign of receding upward pressure on prices, given that HICP inflation excluding the more volatile items of energy and unprocessed food prices has remained high throughout the first half of this year, reflecting in particular trends in services prices. Moreover, it is to be expected that overall HICP inflation rates will fluctuate around 2% in the coming months.","The strengthening of the euro exchange rate should have a moderating effect on inflation. However, it is difficult to quantify the size and establish the timing of this effect. For price stability to be maintained on a sustainable basis it is crucial that the high wage increases resulting from recent negotiations in some regions do not spread across the euro area, not least because this would have negative consequences for competitiveness, employment growth and consumption.","Overall, the strengthening of the euro exchange rate is a new factor suggesting a potential for lower inflation rates. However, other factors – in particular monetary developments and wage trends – do not indicate a moderation in price pressures. Monetary policy therefore needs to remain vigilant as regards the key factors determining the outlook for price stability over the medium term.","Regarding fiscal policies in the euro area, we have seen some worrying developments in the past few months. Against this background we call upon all member countries to honour the commitments made to achieve budgets that are close to balance or in surplus by 2003-04, in compliance with the framework of the Stability and Growth Pact. This is necessary in order to maintain and further strengthen confidence in the policy framework of the euro area and to establish fiscal positions in all countries that allow automatic stabilisers to operate efficiently without endangering sound fiscal positions in the longer term. Moreover, governments are encouraged to push ahead with reforms relating to the size and structure of public expenditure and revenue, which will also create room for tax cuts and absorb the fiscal costs of population ageing.","In the field of structural reforms allow me to refer briefly to the adoption of the Broad Economic Policy Guidelines. If implemented in a determined manner, structural reforms will contribute to expanding the euro area's potential for non-inflationary growth and to reducing its high level of unemployment.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the President of the Eurogroup, Mr. Christodoulakis, and Commissioner Solbes.","At today's meeting, the Governing Council continued its comprehensive examination of monetary, financial and economic developments and assessed new evidence that has become available over the past few weeks. Our conclusion is that risks to price stability appear rather balanced. Against this background, the current level of key ECB interest rates is appropriate.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 was 7.3% in the period from May to July 2002, compared with 7.4% in the period from April to June 2002. Hence, there is no indication of a significant reduction in monetary growth over the last few months. The recent strength in M3 growth partly reflects both the low opportunity cost of holding money and renewed portfolio shifts into M3 in an environment of financial market uncertainty. In this context, monetary trends need to be assessed with caution. From a longer-term perspective, there is concern that more liquidity is available in the euro area than would be needed to finance sustainable, non-inflationary economic growth. However, at this juncture, there is less risk that excess liquidity will translate into inflationary pressure, given the environment of subdued demand. The trend in the growth of loans to the private sector also seems to point in this direction.","Concerning the second pillar, the latest data confirm a modest recovery in real GDP growth in the euro area in the first half of this year. In the second quarter of this year real GDP growth is estimated to have grown by 0.3% quarter on quarter, following upwardly revised growth of 0.4% in the first quarter. In contrast to the first quarter, developments in demand appear to have been more broadly based, as activity was supported by private consumption, export growth and inventories. However, overall domestic demand growth remained subdued as a result of the protracted weakness of investment.","Looking ahead, the most likely scenario is that of ongoing, albeit modest, growth in real GDP in the second half of this year, with growth rates in line with potential growth in 2003. This delay in the acceleration of economic activity in the euro area broadly corresponds with the world economic outlook, given that the expected pace of the recovery has been scaled down over recent months. Sharp declines in stock prices are having negative effects on consumer and investor confidence. Consequently, the strength of the upturn in economic activity has become more uncertain, both inside and outside the euro area. At the same time, however, the conditions for a stronger economic recovery in the euro area remain in place. On the domestic side, private consumption should particularly benefit from lower inflation and improved real disposable income, while investment should be supported by low nominal and real market interest rates. Finally, the gradual recovery of the global economy is also expected to continue. Nevertheless, risks to the economic outlook, both inside and outside the euro area, need to be monitored closely.","Turning to price developments, in July annual HICP inflation was 1.9%, while the inflation rate excluding unprocessed food and energy fell slightly to 2.5%, its first decline in 2002. Eurostat's flash estimate for August, which indicates that annual HICP inflation increased to 2.1%, is fully in line with previous expectations that inflation rates were likely to fluctuate at around 2% for the remainder of the year. However, the short-term trend is also dependent on oil price developments, which have increased significantly over recent months.","Looking further ahead, the recent appreciation of the euro exchange rate, as well as the overall economic environment, should contribute to a reduction in consumer price inflation. Moreover, services price inflation is expected to moderate somewhat, following particularly strong increases in 2002. However, for inflation rates to come down to levels below 2% in 2003, as currently projected by most forecasts, it is crucial that oil prices do not escalate and that wage moderation prevails. With respect to nominal wage growth, we have already noted an upward trend over recent years, which continued even when the economy started to slow down. While the information from the latest wage indicators does not signal a further acceleration, wage developments remain a cause for concern, despite the weak cyclical situation.","With regard to the devastating floods which have hit three member countries in particular, we deeply regret the substantial loss of life. The overall macroeconomic impact of these floods should be limited and have no lasting effects. Certain food prices could temporarily rise as a result, also due to bad weather conditions in other euro area countries, and while real GDP growth could initially be dampened slightly it may subsequently be stimulated by reconstruction.","Overall, subdued aggregate demand and the strengthening of the euro should contribute to lower inflationary pressure. At the same time, other factors – in particular monetary developments, but also wage trends and oil price developments – might pose risks to price stability in the medium term and therefore need to be monitored closely.","Regarding fiscal policies in the euro area, flood-related costs should lead to a review of priorities and a reallocation of expenditure. In addition, against the background of recent developments, it seems to be more warranted than ever to call on member countries to remain committed to the Stability and Growth Pact. Countries with sound fiscal positions should safeguard their achievements, while countries with remaining imbalances must avoid deficits in excess of 3% of GDP and implement determined policies in order to progress towards budgets close to balance or in surplus. This is essential for maintaining and further strengthening confidence in the policy framework in the euro area and for establishing fiscal positions in all countries that allow automatic stabilisers to work efficiently without endangering sound fiscal positions in the longer term.","In the field of structural reforms we continue to urge governments to implement, in a determined way, the agenda set in the Broad Economic Policy Guidelines. Structural reforms will contribute to expanding the euro area's potential for non-inflationary growth and to reducing its high level of unemployment. At the same time, they will help to foster confidence among consumers and investors in long-term growth and employment opportunities in the euro area, thereby having a positive effect on spending and investment decisions in the short and medium term. Such confidence is fostered by a determined and broadly based implementation of the reform agenda, focusing, in particular, on labour and product markets.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB.","Today, the Governing Council continued its in-depth examination of monetary, financial and economic developments, incorporating in its assessment the new evidence that has become available over recent weeks. Our conclusion is that risks to price stability are at present balanced. Based on our overall assessment, we have kept the key ECB interest rates unchanged.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 was 7.1% in the period from June to August 2002, compared with 7.3% in the period from May to July 2002. Hence, monetary growth remained strong and liquidity in the euro area ample. Recent monetary developments, however, should be interpreted with care. On the one hand, monetary trends have been influenced by considerable uncertainty in financial markets and therefore partly reflect strong liquidity preferences among investors. On the other hand, the low level of short-term interest rates has tended to stimulate monetary expansion, reflected particularly in the increase in the narrow aggregate M1. At the same time, loans to the private sector appear to be stabilising at growth rates above 5%, a rate of expansion which, in real terms, is in line with the long-term average. Considering all the evidence relating to the first pillar, from a medium-term perspective, more liquidity is available than would be needed to finance sustainable, non-inflationary growth. However, given the current environment, we do not see the risk of this translating into inflationary pressure in the near future.","Concerning the second pillar, the latest data and survey results confirm that economic activity in the euro area remains subdued. These data and results also suggest that real GDP growth in the third quarter of 2002 may turn out to be similar to that of the first two quarters, when quarter-on-quarter expansion reached 0.4%. Against this background, previous expectations of an acceleration in economic growth in 2002 will not materialise. At the same time, a significant degree of uncertainty has been building up over recent months owing, in particular, to the sharp decline in stock prices and their potential detrimental effects on the economy, as well as to geopolitical tensions as reflected in surging oil prices.","Nevertheless, the main scenario for the euro area is a return, in the course of 2003, to economic growth rates in line with those of potential, as also reflected in forecasts by international organisations. However, the uncertainty surrounding the economic outlook is high. Sources of downside risks – including oil prices, imbalances in the global economy, financial market uncertainties and their impact on consumption, investment, and thus on employment – will be monitored closely. At this juncture, it is particularly difficult to offer a precise assessment of the timing and strength of the economic upswing, both in the euro area and globally.","Turning to price developments, in August annual HICP inflation was 2.1%. Eurostat's flash estimate for September indicates an annual HICP inflation rate of 2.2%. While no detailed information is as yet available for individual HICP sub-components, the recent increase is likely to reflect the rise in energy prices. These developments generally remain in line with previous expectations of inflation rates hovering at around 2% for the remainder of the year, but short-term trends could be affected by future oil price developments.","Looking further ahead, the euro exchange rate, which has strengthened since early this year, and the overall economic environment should contribute towards reducing inflationary pressure. In addition, we expect rates of perceived inflation, which are currently high, to move closer to actual rates. However, the assessment that inflation rates will fall and remain below 2%, depends on the development of oil prices and the prevalence of wage moderation. In this respect, earlier this year we pointed to an upward trend in wage growth which, according to preliminary indications, may have come to a halt only recently. In the same vein we have noted the inertia of consumer price developments in the euro area, as reflected in the stubbornness of the annual rate of inflation excluding unprocessed food and energy. This rate was 2.5% in August, only marginally lower than early this year; therefore, vigilance is warranted.","Overall, monetary policy will remain geared towards maintaining price stability and will continue to focus on the medium term, thereby providing a reliable anchor for consumers and investors. At the current juncture, aggregate demand and exchange rate developments should contribute towards easing inflationary pressure, while monetary developments, wage trends and oil price developments could point to risks in the opposite direction. Consequently, all factors which could influence the balance of risk to price stability will be monitored closely.","Regarding fiscal policies in the euro area, the Governing Council notes with concern that there is still insufficient ambition in some countries to bring budgets to positions close to balance or in surplus over the medium term. The current fiscal problems in some countries arise from the fact that these countries did not take the opportunity to improve substantially on their fiscal positions when economic growth rates were considerably higher than is currently the case. Given that this opportunity was missed, there is now no alternative but for all countries with remaining imbalances to make firm commitments to avoid excessive deficits, in keeping with the Treaty provisions, and to attain budgetary positions close to balance or in surplus, as required under the Stability and Growth Pact. Swift, decisive action is necessary in order to set up credible adjustment paths based both on realistic assumptions on the economic environment and on well-specified consolidation measures. Such adjustment paths must entail significant yearly improvements in the cyclically adjusted budget balance, and must be followed strictly and be completed within the shortest possible time-frame. To underpin this process, the ECB calls for strict monitoring procedures for the implementation of the consolidation strategies, the full use of the excessive deficit procedure and the application of rigorous accounting rules.","Fiscal consolidation is not detrimental to the outlook for economic growth. The attainment of budgetary positions in line with the Stability and Growth Pact will gradually create scope for dealing with ageing-related issues and their impact on public finances. In any case, in the short term, the Pact does not place constraints on those member countries already in compliance, although it does call for the transition to be completed in the few remaining countries. Direct effects on short-term demand are to be counteracted by higher credibility of the conduct of fiscal policy – boosting confidence and thus private spending.","We also urge governments to overcome the inertia in implementing structural reforms, both within the area of fiscal expenditures and revenues and in labour and product markets. Any further delay in tackling, with greater determination, the underlying reasons for limited growth in potential output over the medium term, and for only partially exploiting the current potential, is costly. It would also make it increasingly difficult to reach the objectives set in the Lisbon Agenda. Structural reforms take time to unfold fully their benefits and should therefore be frontloaded. Under the current circumstances, frontloading is particularly needed as it would support confidence.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB.","We have reviewed monetary, financial and economic developments and updated our assessment in the light of the information available. In view of the high uncertainty on future growth, and its implication for medium-term inflationary developments, the Governing Council has discussed extensively the arguments for and against a cut in the key ECB interest rates. The view has prevailed to keep interest rates unchanged. However, the Governing Council will monitor closely the downside risks to economic growth in the euro area.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 was 7.1% in the period from July to September 2002, unchanged from the previous three-month average. The continuing strong expansion of M3 should be interpreted with caution, since it has been boosted considerably by high uncertainty in financial markets over recent months. At the same time, the low level of short-term interest rates continues to stimulate demand for the most liquid assets, which are included in the narrow aggregate M1. Loans to the private sector have stabilised at growth rates somewhat above 5%, a rate of expansion which, in real terms, is broadly in line with the long-term average. Considering all the evidence relating to the first pillar, from a medium-term perspective, more liquidity is available than would be needed to finance sustainable, non-inflationary growth. However, given the current economic environment, we do not see the risk of this translating into inflationary pressure in the near future.","Concerning the second pillar, recent short-term conjunctural indicators and survey data suggest that real GDP in the euro area has continued to grow only moderately in the third quarter of this year. This is in contrast to earlier expectations that a more pronounced upswing would occur in the course of this year. Obviously, the hesitant pace of economic expansion and current, lacklustre confidence reflect the significant degree of uncertainty that has been building up over recent months. This uncertainty is associated with geopolitical tensions, the evolution of oil prices and developments in stock markets.","However, for the time being, the main scenario for the euro area remains that economic growth is expected to return to rates close to potential in the course of 2003. In fact, this expectation is consistent with all forecasts published by international organisations. Private forecasters, on the whole, also seem to share the same view. Moreover, financial markets have shown signs of stabilisation in recent weeks following a period of considerable turbulence. The expectation of an improvement in economic activity in the euro area is contingent on a recovery of growth in private consumption, supported by a reduction in actual and perceived inflation rates. This expectation is also based on a projected gradual recovery of the world economy and export growth which, together with the low level of interest rates, should help to strengthen investment.","Nevertheless, the uncertainty surrounding this scenario remains high. It is therefore very difficult, at this juncture, to predict the timing and strength of the economic upswing, both in the euro area and globally.","Turning to recent price developments, in September annual HICP inflation was 2.1%. For October, Eurostat's flash estimate indicates an annual HICP inflation rate of 2.2%. This increase is again likely to reflect developments in energy prices, although no detailed information is available at present.","Looking at price developments for the remainder of 2002 and the early part of next year, despite the recent decline in oil prices, some upward impact may occur reflecting base effects and country-specific developments – such as increases in indirect taxes or specific developments in services prices. Although difficult to anticipate, particularly due to the volatility of oil prices, a further increase in the annual rates of inflation around the turn of the year and a delay in the return to inflation rates below 2% cannot be ruled out. However, this further increase should only be temporary.","Beyond the very short term, we consider that both the euro exchange rate, which has strengthened since early this year, and the overall economic environment are still contributing towards reducing inflationary pressure. Moreover, there should also be a further unwinding of the indirect effects of previous increases in oil prices and other factors that have added to the stickiness of the annual rate of HICP inflation excluding unprocessed food and energy prices. However, for inflation rates to fall below 2% in the course of 2003 and to remain in line with price stability thereafter, as indicated by recent forecasts, it is crucial that oil prices do not increase sharply again and that the upward trend in labour cost indicators observed in recent years does not continue. With regard to the latter, there seems to be notable inertia, despite the subdued economic expansion; therefore, vigilance is warranted.","Regarding fiscal policies in the euro area, may I expressly refer you to the Governing Council's statement of Thursday, 24 October on the Stability and Growth Pact. There is a strong consensus within the Governing Council that the principle of budgetary discipline enshrined in the Treaty and the Stability and Growth Pact are indispensable for Economic and Monetary Union and that the Stability and Growth Pact has been successful in promoting sound public finances and fiscal convergence, as well as in supporting the return to price stability. Moreover, the Pact is in the interest of the Member States.","May I also again urge governments to implement decisively the structural reform agenda, both within the area of fiscal expenditures and revenues and in labour and product markets. Such action is needed to enhance potential output growth over the medium term. At the same time, the prompt implementation of structural reforms would contribute towards strengthening confidence in the euro area and thereby support economic growth in the short term.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","We continued our in-depth assessment of monetary, financial and economic developments and the discussions we had in early November on the appropriate stance of monetary policy, taking account of the new information. Overall, since our last meeting, the arguments in favour of a cut in the key ECB interest rates have strengthened. The evidence that inflationary pressures are easing has increased, owing in particular to the sluggish economic expansion. Furthermore, downside risks to economic growth have not vanished.","As a result, the Governing Council has decided to lower the key ECB interest rates by 50 basis points.","At today's meeting, we also reviewed the reference value for monetary growth, which has an important role under the first pillar of the ECB's monetary policy strategy. The Governing Council has decided to leave the current value unchanged at an annual growth rate of 4�% for the broad aggregate M3. This decision was taken on the grounds that the evidence continues to support the assumptions which have formed the basis of the derivation of the reference value since 1999, namely those relating to trend potential output growth of 2-2�% per annum and to a trend decline in M3 income velocity of �-1% per annum in the euro area. We will issue a separate press release this afternoon explaining in greater detail the background to this decision.","When comparing current developments with the reference value, it is important to remember that the reference value is a medium-term concept. Short-term movements of M3 do not necessarily have implications for future price developments. Moreover, deviations of M3 from the reference value must be analysed in conjunction with other real and financial indicators in order to understand their implications for price stability.","Turning to the most recent data, in the period from August to October 2002 the three-month average of the annual growth rate of M3 was 7.1%, unchanged from the previous three-month average. M3 growth has been influenced considerably by portfolio re-allocations in an environment of general uncertainty and particularly by stress in financial markets. At the same time, it also reflects the low level of interest rates in the euro area which makes the holding of liquid assets relatively attractive.","There is ample liquidity in the euro area. However, in the light of the sluggish economic growth, it is unlikely that this excess liquidity will translate into inflationary pressures in the near future. The recent moderation of the growth in loans to the private sector, particularly to non-financial corporations, supports this assessment.","Turning to the second pillar, recent information has strengthened the evidence of a decline in inflationary pressure. The sluggishness of real GDP growth in the euro area was confirmed yesterday by Eurostat's first estimate, which indicates that quarter-on-quarter growth was 0.3% in the third quarter. This was towards the lower end of expectations. Recent euro area-wide survey data suggest that overall sentiment in the economy remains lacklustre, with business confidence improving somewhat but consumer confidence falling further. It is expected, therefore, that economic growth will also remain subdued in the coming months.","This disappointing picture mainly reflects the persistently high degree of uncertainty. Geopolitical tensions with potential consequences for oil prices, developments in financial markets, the sluggish growth of the world economy and the persistence of global imbalances are all factors that weigh adversely on confidence. These factors also have negative effects on euro area consumption, investment and the labour markets. As it is hard to predict when this uncertainty will start to abate, it must be taken into account in the more medium-term outlook for growth.","The subdued economic activity should limit potential upward risks to price stability and help to ease inflationary pressure. Let me elaborate on this.","First, when looking back, we recognise that inflation has been rather persistent despite the economic slowdown. This persistence has partly reflected a series of transitory developments, such as the indirect effect of previous oil and food price increases and a limited changeover effect. However, structural factors in the labour and product markets have also played a role, as mirrored, in particular, in the upward trend in wage developments observed until recently. This trend has only just shown signs of stabilisation. Services price inflation has also remained stubbornly high. Indeed, structural rigidities have impeded an appropriate adjustment of wages and prices. As a result, annual inflation rates have remained above 2% during most of 2002, including November, as has been confirmed by Eurostat's flash estimate, which indicates an annual HICP inflation rate of 2.2%.","Second, when looking forward from now until the early part of 2003, although recent developments in oil prices have lowered short-term price pressures, there are still some factors that could keep annual inflation rates above 2% for several months to come. Yet this short-term outlook is related both to base effects and to indirect taxes and administered prices, i.e. to temporary developments.","Third, when looking beyond the short term, we consider that both the overall economic environment and the euro exchange rate, which has strengthened since early this year, will contribute further towards reducing inflationary pressure. Moreover, we expect the indirect effects of previous increases in oil prices and other factors to further unwind. Although wage-related risks remain in place, they are judged less likely to materialise as long as the economic environment does not change substantially.","The assessment which guided today's monetary policy decision was that, overall, the prospect has strengthened for inflation to fall below 2% in the course of 2003 and to remain in line with price stability thereafter. Our decision should also help to improve the outlook for the euro area economy by providing a counterweight to some of the existing downside risks to economic growth, thereby supporting confidence. The most likely scenario is that economic growth will gradually recover in the course of 2003 towards rates more in line with potential. Falling inflation should support real disposable income and, together with a reduction in the gap between perceived and actual inflation rates, should underpin private consumption. Moreover, we expect an improvement in world demand. This, and the low level of interest rates, should benefit investment.","Let me point out that, with today's decision, the key ECB interest rates have reached a very low level by historical standards. The Governing Council will continue to monitor closely all factors that may affect the prospects for inflation in the euro area.","The outlook for the euro area economy will also very much depend on visible progress in other policy areas. Regarding fiscal policies in the euro area, I would like to reiterate that budgetary discipline strengthens the conditions for sustainable growth of GDP and employment. Therefore, sound fiscal positions, as enshrined in the Treaty and further developed in the Stability and Growth Pact, are in the interest of all the Member States. Given the disappointing fiscal developments in some countries and the challenges which have emerged to the EU fiscal framework, we welcome the moves to correct or prevent excessive deficits, i.e. the implementation of excessive deficit procedures in the case of Germany and Portugal and the early warning issued to France. Countries with remaining imbalances are urged to prepare sufficiently ambitious consolidation plans for their forthcoming stability programmes. Emphasis should be placed on a growth-oriented consolidation policy that strengthens the productive forces of the economy. The Governing Council considers the recent Commission communication to be a good starting point for rebuilding confidence in the budgetary framework. As already reflected in the Statement on the Stability and Growth Pact of 24 October 2002, we fully support the Commission's main objective, namely to improve the implementation of the Pact within the existing framework of rules.","Finally, I should like to stress again that there is still an urgent need to implement decisively the structural reform agenda. We note with some concern the slow progress in many euro area countries and call on governments to take determined action. The medium-term impact of these reforms on the economic growth potential of the euro area is likely to be substantial. A prompt implementation of structural reforms in the labour, product and financial markets is particularly important at this juncture since it would contribute to strengthening confidence in the euro area, thereby also supporting economic activity in the short term.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the President of the ECOFIN Council, Mr. Christodoulakis, and Commissioner Solbes.","We have reviewed monetary, financial and economic developments and updated our assessment in light of the new information available. Overall, we consider that the outlook for price stability in the medium term has not changed since our decision of 5 December to reduce the key ECB interest rates. We judge the current monetary policy stance appropriate to maintain a favourable outlook for price stability in the medium term. Hence, we have decided to keep our key rates unchanged.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 was 7.1% for the period from September to November 2002, unchanged from the period from August to October 2002. A strong preference of investors for liquid and secure assets, in an environment of continued financial market, economic and geopolitical uncertainty, remains a major driving force behind the strong monetary dynamics. Furthermore, the low level of interest rates prevailing in the euro area makes the holding of monetary assets relatively attractive.","As a result of the pace of monetary growth, liquidity in the euro area is ample. However, at the current juncture, given that the portfolio shifts due to economic and financial uncertainty may be a temporary phenomenon, and in light of the sluggish economic growth, the excess liquidity is deemed unlikely to translate into inflationary pressures. The continued decline in the growth of loans to the private sector up to November 2002 supports this assessment.","Turning to the second pillar, the outlook for economic activity in the euro area has remained broadly unchanged. As recently published survey data indicate, economic growth is likely to have remained subdued at the end of last year. For 2003, a gradual increase in real GDP growth rates to levels close to potential later in the year remains the main scenario, provided that the factors currently contributing to the general climate of uncertainty gradually unwind. Although some stabilisation in financial markets has been observed over the past couple of months, investors continue to perceive a high level of uncertainty. At the same time, there are still risks relating to a disorderly adjustment of the past accumulation of macroeconomic imbalances, especially outside the euro area. In addition, geopolitical tensions continue to weigh adversely on confidence. Indeed, the increase in oil prices over the past few weeks – besides being influenced by temporary supply constraints – reflects the risk of more acute tensions in oil markets in the future, which, in turn, would have a negative impact on the prospects for economic activity worldwide. There are still, therefore, downside risks to the outlook for economic activity in the euro area, although the current low level of interest rates should help to counterbalance these.","Turning to price developments, according to Eurostat's flash estimate, annual HICP inflation was 2.2% in December 2002, unchanged from November 2002. Due to the increase in oil prices, some renewed upward pressure on consumer prices is likely to have emerged around the turn of the year, and this pressure may have been reinforced by effects stemming from various increases in indirect taxes and administered prices which became effective at the beginning of 2003. At the same time, base effects – relating mainly to unprocessed food prices but, in part, also originating from past increases in services prices – will help to reduce annual HICP inflation figures in early 2003. Furthermore, the direct effects of the recent appreciation of the exchange rate of the euro on import prices and their gradual passthrough to the euro area economy should contribute to dampening consumer price inflation. The current subdued pace of economic growth should also contain inflationary pressures. While the significant risks surrounding oil price developments make any short-term prediction difficult at this stage, the most likely outcome remains that inflation will stabilise in the course of 2003 at a level below 2%.","A major condition for this outlook for inflation to materialise will be moderate wage developments. Reflecting the rigidities prevailing in euro area labour markets, wage growth remained on an upward trend until early 2002, despite the weakening of economic activity. It is not yet clear whether this trend has come to a halt. Wage moderation is crucial for maintaining price stability. Furthermore, it would help to improve the prospects for economic and employment growth.","An important contribution to strengthening growth prospects in the euro area should also come from fiscal and structural policies. Determined reform efforts are needed in these policy areas to increase incentives for investment and employment creation in the euro area.","Regarding fiscal policy, countries with remaining fiscal imbalances have committed themselves to implement consolidation plans in order to reach budgetary positions close to balance or in surplus in the medium term. As part of this process, governments should put emphasis on growth-oriented consolidation policies that strengthen the productive forces of the economy. Such policies are likely to be most effective when integrated into a comprehensive reform strategy based on structural retrenchment in spending.","The fiscal policy framework, as laid down in the Treaty and the Stability and Growth Pact, provides a sound basis for limiting the risk of fiscal imbalances occurring. At the same time, it preserves an appropriate medium-term orientation for fiscal policy, based on realistic assumptions regarding economic developments. The Governing Council supports the steps taken by the Commission to preserve the functioning of the framework, including the implementation of excessive deficit procedures and the issuing of early warnings, where required.","Turning to structural reforms, it is essential that governments intensify their efforts to expand the euro area's potential for non-inflationary growth and to reduce its high level of unemployment. The need for further progress in this field is particularly evident in a phase when the euro area economy has to adapt to a sequence of adverse shocks. Indeed, such reforms, which should aim to reduce rigidities in labour and goods markets, could significantly enhance the degree of resilience of economic activity to such shocks, both in the euro area as a whole and in its regions. Renewed momentum in the process of structural reform will be important to foster confidence among consumers and investors in long-term growth and employment opportunities in the euro area. This, in turn, should also have a positive effect on spending and investment decisions in the short and medium term.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB.","We have reviewed monetary, financial and economic developments and have incorporated new information into our assessment. Overall, the current monetary policy stance remains appropriate to preserve a favourable outlook for price stability in the medium term. Consequently, we have kept our key interest rates unchanged. Their low level should help counterbalance the negative effects on economic activity that currently stem from the high degree of worldwide uncertainty and should, thereby, contribute to a sustainable economic recovery in the course of 2003. For the time being, we still assume that the high degree of uncertainty will decline in the course of this year. However, at this juncture it is very difficult, if not impossible, to form a conclusive judgement on the impact of geopolitical developments on the world economy in general, and the euro area in particular.","Turning to the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 declined to 6.9% in the period from October to December 2002, from 7.1% in the period from September to November 2002. The continued strong monetary growth reflects an ongoing pronounced preference for liquidity in an environment of high financial, economic and geopolitical uncertainty. However, it also mirrors the low level of short-term and long-term interest rates in the euro area.","Although liquidity remains ample, it is unlikely at this stage that it will give rise to inflationary pressures, given the current economic environment and the expectation that some of the portfolio shifts will be reversed once the financial market uncertainty diminishes. This assessment is also supported by the continuing moderate growth of loans to the private sector.","As regards the information under the second pillar, economic activity in the euro area remained subdued around the turn of the year, as suggested by recently published data and survey information. These indications are broadly in line with previous expectations which suggest a gradual increase, starting in the second half of the year, in real GDP growth rates to levels close to potential. Whereas the appreciation of the euro over recent months may contribute to dampening export growth to some extent, the price competitiveness of euro area companies remains favourable in a medium-term perspective and export growth should benefit from the expected recovery of the world economy. Therefore, recent exchange rate movements should not fundamentally affect the main scenario for the economic outlook.","At the same time, several factors contributing to the general climate of uncertainty are still in place. In particular, investors remain risk averse against the background of ongoing geopolitical tension. Further turbulence in the oil markets could have a negative impact on economic activity throughout the world and, thereby, also on euro area employment. These concerns are also weighing on consumer confidence. Finally, the accumulated macroeconomic imbalances give rise to uncertainty about the strength of the recovery in other major economies. Taken together, there remain downside risks to the outlook for euro area economic activity.","Considering price developments, according to Eurostat's flash estimate, annual HICP inflation decreased to 2.1% in January 2003, from 2.3% in the previous month. As usual, these estimates are subject to uncertainty and there is no precise breakdown available as yet. However, it appears that compensating factors played a role: on the one hand, there was upward pressure from the recent hike in oil prices and from various increases in indirect taxes and administered prices at the beginning of 2003; on the other hand, the strengthening of the euro and benign base effects are dampening consumer price increases. These two latter factors should also help to further reduce annual rates of HICP inflation over the next few months. However, given the high volatility in oil markets, short-term forecasts for HICP inflation are currently subject to a particularly high degree of uncertainty.","Beyond the immediate future, the gradual pass-through of the appreciation of the euro, together with the expected moderate improvement in economic growth, should reduce inflationary pressures. The most likely outcome remains that inflation will fall and eventually stabilise at a level below 2% in the course of 2003. A major condition for price stability to also prevail in the medium term will be moderate wage developments. Wage moderation would also help improve the prospects for economic growth and further employment creation. It is therefore of particular importance that the upward trend in wage growth finally comes to a halt. However, the indications for this are still mixed, despite weak economic activity throughout last year.","As for fiscal policy, the framework laid down in the Treaty and the Stability and Growth Pact limits the risk of fiscal imbalances occurring, and therefore contributes significantly to favourable financing conditions for the private sector. At the same time, it allows an appropriate medium-term orientation of fiscal policy which fosters confidence and thereby growth. In order to fully reap the benefits of this framework, it is important that countries respect its objectives and implement appropriate consolidation plans where needed. Hence, the commitments made in the stability programmes and the requests to further improve fiscal positions, as subsequently agreed in the ECOFIN Council, must be met in full. These benefits would be magnified if the underlying policy measures were part of a comprehensive reform strategy to support economic growth.","It is, in fact, the implementation of structural reforms at the micro level that ultimately raises the production potential, improves flexibility in the economy and makes the euro area more resilient to external shocks. Clearly, lack of progress in structural reform is one of the key factors currently hampering a recovery in confidence. Therefore, the Governing Council welcomes a recent communication by the Commission on the implementation of the Broad Economic Policy Guidelines. It emphasises the need to step up the pace of labour market reform to achieve the Lisbon objectives, to fully implement the Internal Market and to enhance competition in product markets as well as to foster capital market integration, entrepreneurship, a knowledge-based economy, and research and development. We fully share the Commission's assessment that policy inertia and backtracking are widespread. Against this background, renewed momentum in the process of structural reform will be crucial to foster confidence among consumers and investors.","Ladies and gentlemen, the Vice-President and I will report on the outcome of today's meeting of the Governing Council of the ECB.","We have comprehensively reviewed monetary, financial and economic developments today. We concluded that the outlook for price stability over the medium term has improved in recent months, owing in particular to the subdued pace of economic growth and the appreciation of the exchange rate of the euro. As a result, the Governing Council has decided to lower the key ECB interest rates by 25 basis points.","Let me explain our assessment of recent economic developments in more detail.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 was 7.1% in the period from November 2002 to January 2003, compared with 6.9% in the period from October to December 2002. The continued strong monetary growth reflects an ongoing pronounced preference for liquidity in an environment of high financial, economic and geopolitical uncertainty. Although liquidity remains ample, it is not expected at this stage to give rise to inflationary pressures, given the current economic context and the expectation that some of the portfolio shifts will be reversed once the financial market uncertainty diminishes. Recent data on loans to the private sector, notably the weak growth in loans to non-financial corporations in late 2002, confirm this assessment.","Turning to the analysis under the second pillar, available data and surveys indicate that economic activity in the euro area remained sluggish in late 2002 and in the first months of 2003. In light of recent developments, the outlook for economic growth in the euro area in 2003 has weakened compared with previous expectations, owing especially to the geopolitical tensions and the associated rise in oil prices. Accordingly, only a very modest rate of economic growth should now be expected this year.","Considering price developments, according to Eurostat, annual HICP inflation is estimated to have been 2.3% in February 2003, slightly up from 2.2% in January. The main factor behind this change seems to be the rise in oil prices. In addition, some base effects related to food prices may have contributed to the renewed increase in annual inflation in February.","The ongoing volatility in oil markets makes it difficult to forecast short-term inflation developments. However, once some normalisation in these markets has occurred, more fundamental factors should dominate price developments. First, the significant appreciation of the nominal effective exchange rate of the euro over the past year is expected to continue to feed through the economy into consumer prices, via import and producer prices. Second, the moderate pace of economic growth should also reduce inflationary pressures, influencing price and cost-setting behaviours. If oil prices moderate in the future, as currently expected by markets, the most likely outcome will be that inflation rates will fall below 2% in the course of 2003 and remain clearly at levels in line with price stability thereafter.","This baseline scenario relies on the assumption that, especially in an environment of subdued economic growth, wage moderation will prevail. In fact, some recent indications suggest more modest wage developments towards the end of last year, but this picture would need to be confirmed in the future.","Overall, ECB key interest rates have reached levels which are very low. On the basis of the currently available information, this policy stance, while contributing to the preservation of price stability over the medium term, provides some counterbalance to the various factors which are currently having an adverse effect on economic activity.","Looking ahead, the most likely scenario is that economic growth will gradually recover once the factors contributing to the high economic uncertainty have diminished. While the expected weak economic activity at the beginning of this year will imply low average economic growth in 2003, a rise in quarterly growth rates should materialise in the course of the year. Over time, the euro area economy should benefit from a global economic recovery and the prevailing low levels of interest rates, as well as from falling inflation supporting real disposable income and underpinning private consumption growth.","However, any judgement on future developments is overshadowed at present by the geopolitical tensions and their potential resolution. Monetary policy cannot address this kind of uncertainty. Depending on further developments, the Governing Council stands ready to act decisively and in a timely manner.","The prospects for the euro area economy will depend very much on measures taken in other policy areas. As for fiscal policy, adherence of all countries to the framework laid down in the Treaty and the Stability and Growth Pact will support stable and sustainable public finances, and will thereby contribute significantly both to confidence and to favourable financing conditions for the private sector. In most cases, the fiscal policy stance implicit in the updated stability programmes strikes a reasonable balance between letting automatic stabilisers operate and seeking further consolidation where needed. In some cases, current consolidation ambitions are weak. In order to further boost confidence in the fiscal framework and the economic environment, it is essential that appropriate consolidation plans are implemented in all countries with remaining imbalances. Hence, the commitments made in the stability programmes and the requests to further improve fiscal positions, as subsequently agreed in the ECOFIN Council, must be implemented in full. In this respect, the measures should be part of a comprehensive and growth-oriented strategy, which for most countries means putting the focus on both restraining the volume, and reforming the structure, of public expenditure.","Finally, the outlook for the euro area economy could be significantly improved if governments strengthen their efforts to implement structural reforms in labour and product markets. Such reforms are important to ultimately raise the euro area's production potential, improve the flexibility of the economy, and make the euro area more resilient to external shocks. In particular at the current juncture, when economic activity is subdued, taking measures to make the euro area a more attractive place to invest in can contribute substantially to fostering confidence.","We are now at your disposal for questions.","Ladies and gentlemen, the Governing Council of the European Central Bank today met for the seventh time outside Frankfurt. Let me therefore thank both Governor Fazio for his invitation and generous hospitality, and the staff of the Banca d'Italia for an excellently organised meeting.","At our meeting today, which took place in the exceptional circumstances associated with the conflict in Iraq, we comprehensively reviewed monetary, financial and economic developments. We discussed at some length the potential economic implications of the military operations. In the Governing Council's view, it is not possible at this juncture to assess what effect they will have on the global economy, and on economic developments and the medium-term outlook for price stability in the euro area. Overall, the basic elements of our assessment of 6 March on the outlook for price stability remain in place and accordingly we decided to keep interest rates unchanged.","We also noted that the outbreak of the war has not affected the functioning of the financial system. As indicated in our press release of 20 March, the Governing Council will act to ensure the proper functioning of financial markets, providing sufficient liquidity in the euro area as needed.","Let me now explain our assessment of economic developments in more detail.","As regards the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rate of M3 was 7.4% in the period from December 2002 to February 2003, up from 7.0% in the period from November 2002 to January 2003. Given the continued high volatility in financial markets, mainly related to the geopolitical uncertainty, M3 growth continued to be fostered by portfolio shifts away from more risky assets. However, M3 growth appears also to have been affected by the low level of short-term interest rates prevailing in the euro area, as indicated by the strong growth in its most liquid components. At the same time, credit growth showed signs of stabilisation in early 2003, after the moderation observed throughout last year.","Turning to the analysis under the second pillar, recent data and surveys continue to confirm that real GDP growth in the euro area remained weak in early 2003. In particular, the persistence of geopolitical tensions continued to negatively affect sentiment and dampen economic activity, thereby adding to the forces which had already depressed the outlook for the euro area before the escalation of tensions in the Middle East. As a result, we should only expect a modest rate of economic growth for 2003. However, the evolution of economic growth for the rest of this year is particularly difficult to foresee at the moment, given the exceptional degree of uncertainty arising from the military conflict. Our baseline scenario continues to be one of a moderate recovery associated with diminishing uncertainty, starting in the second half of 2003. However, we will need to review the economic implications of the war as soon as a clearer picture emerges. A number of scenarios, implying widely different outcomes for economic activity, are conceivable at present. Yet it would be premature to assign specific probabilities to any such exercises, which are mainly of an illustrative nature.","Looking at price developments, annual HICP inflation is estimated by Eurostat to have been 2.4% in March 2003, unchanged from February. The recent drop in oil prices is not likely to be reflected in the price statistics until April.","As for the outlook for price stability over the medium term, it is particularly important to clearly distinguish between short-term volatility and more fundamental factors. While oil price developments may very much influence the pattern of inflation rates over the coming months, other factors should dominate beyond the short term. The lagged effects of the appreciation of the euro exchange rate since mid-2002 will continue to dampen upward pressure on prices, as will the modest economic growth. If the recent significant reduction in oil prices is sustained, inflation rates will in all likelihood fall below 2% in the course of 2003 and remain in line with price stability thereafter; evidently, this presupposes that wage moderation prevails.","Overall, the present policy stance is consistent with the preservation of price stability over the medium term. It maintains a monetary environment that is in itself favourable to economic growth in a situation in which other factors are having an adverse effect on economic activity. Exceptional circumstances are complicating the assessment of economic trends. We will therefore continue to monitor events carefully and evaluate them in the light of our mandate.","Regarding fiscal policies, the Stability and Growth Pact provides a robust and flexible framework for addressing any strains on public finances without undermining the principle of budgetary discipline. While letting, where possible, automatic stabilisers operate in reaction to changing economic circumstances, there is no reason to pursue fiscal activism. It remains essential that both the commitments made in the stability programmes and the requests to further improve fiscal positions, as subsequently agreed in the ECOFIN Council, are implemented in full. This will help to build confidence in the fiscal framework and anchor expectations about the future macroeconomic environment.","In a highly uncertain environment, it is all the more essential that governments help to boost investor and consumer confidence by taking decisive action to implement structural reforms in labour and product markets and in public finance. On the one hand, there appears to be a broad consensus among policymakers and the public that such reforms are important to ultimately raise the euro area's production potential, improve the flexibility of the economy and make the euro area more resilient to external shocks. On the other hand, notwithstanding some progress in individual countries, the effective pace of reform has so far remained slow and clearly insufficient to meet the Lisbon objectives. Over the past few years this has given rise to an implementation gap. Efforts to overcome structural inefficiencies in the functioning of markets must be stepped up. This would promote confidence in the medium-term production capacity of the euro area and therefore counteract to some extent the current high degree of uncertainty.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","The first news I can report is that today we successfully concluded our discussions of the ECB's monetary policy strategy. However, I would ask you to postpone any questions you may have on this subject to a little later this afternoon. A press release will be issued on this matter and Mr. Issing will join us for a special press briefing in the form of a seminar on the outcome of our discussions. This seminar will take place in this room immediately after the press conference. You will also note that, as a consequence of the conclusions we reached, I have restructured today's introductory statement somewhat, and I will be following this new structure in the future. The introductory statement will henceforth present first economic analysis, followed by monetary analysis. It concludes by cross-checking the analyses conducted under these two pillars.","Turning now to our discussion of monetary policy, we have decided to keep our key interest rates unchanged. Taking due account of new economic and monetary information as well as the latest geopolitical developments, we concluded that the current monetary policy stance remains consistent with the preservation of price stability over the medium term. At the same time it maintains a monetary environment that is conducive to economic growth. With the end of the military action in Iraq, important downside risks to the economic recovery have diminished, and our focus is now again on the other forces that have been shaping the economic outlook. The Governing Council will carefully monitor future developments and assess whether conditions for price stability continue to develop favourably.","Let me explain our assessment in detail.","In the context of our economic analysis, focusing on the short to medium term, recently published survey data and the latest information from conjunctural indicators suggest that economic activity in the euro area has remained subdued so far this year. Looking ahead, we continue to expect a gradual strengthening of real GDP growth to start later in 2003 and to gather more pace in the course of next year. Factors supporting this outlook are an expected recovery of global demand, the prospect of falling inflation benefiting real disposable income growth, and the low level of interest rates. Moreover, the recent unwinding of uncertainties associated with geopolitical tensions should contribute to an economic recovery. Such an assessment also seems to be reflected in recent financial market reactions. Since the end of the war in Iraq, financial market volatility has declined significantly, with a notable increase in stock prices.","Nevertheless, there continue to be downside risks. First, there are the risks originating from the past accumulation of macroeconomic imbalances outside the euro area, and lately concerns have arisen with regard to the SARS virus. Moreover, there is also some uncertainty over the extent of the adjustment still needed in the euro area corporate sector in order to enhance productivity and profitability, which could have an impact on employment growth and thus private consumption.","As regards price developments, the annual rate of HICP inflation generally fluctuated at around 2.3-2.4% between the autumn of last year and March 2003. Broadly speaking, declining inflation rates in services and non-energy industrial goods have been offset by rising rates in energy and processed food prices. Conversely, in April energy prices are expected to reflect the decline in oil prices following the developments in Iraq. This expectation is in line with Eurostat's flash estimate for the inflation rate in April, which was 2.1%, i.e. 0.3 percentage point lower than in March.","Looking ahead, current indications do not point to further strong declines in the inflation rate in the immediate future, but lower oil prices, an environment of moderate economic growth and, of course, the effects of the significantly higher exchange rate of the euro should all contribute to reducing inflationary pressure beyond the short term. The outlook for inflation will also depend to a significant extent on wage developments. The available indicators suggest that labour cost growth has shown signs of stabilising in the course of 2002. Moderate wage trends are indeed crucial both to maintain price stability and to foster employment growth.","In the context of our monetary analysis, focusing on the medium to long term, the broad monetary aggregate M3 has now been growing strongly over a protracted period. Moreover, the data for more recent months do not suggest that a process of correction has started. As a consequence, the euro area economy continued to accumulate liquidity significantly above the amount needed to sustain non-inflationary growth The strong monetary expansion contrasted with the more moderate growth in loans to the private sector. This is consistent with our assessment that monetary developments continue to be fostered by portfolio shifts, reflecting a sustained preference on the part of investors for liquid and secure assets in an environment of high uncertainty. However, the low level of interest rates has also contributed to strong monetary growth.","When interpreting monetary trends, particular account needs to be taken of the portfolio shifts towards increased demand for monetary assets for precautionary reasons. The reduction in geopolitical tensions should support an unwinding of these portfolio shifts. A reversal in monetary trends would in any case dampen the concerns regarding the medium to long-term implications of recent monetary dynamics. As a consequence, monetary developments will continue to be monitored closely.","Overall, it currently appears that inflation rates should decline to below 2% over the medium term, in particular given the outlook for economic activity and the significant appreciation of the euro. It also appears that the strong expansion of M3 should not adversely affect this outlook, as portfolio shifts have played a prominent role; in particular, the build up of liquidity should not translate into inflationary pressure as long as economic growth remains modest. Hence, cross-checking the information from the two pillars leads us to conclude that the risks to price stability over the medium term remain limited.","Regarding fiscal policy, developments in 2002 were generally not satisfactory. In particular, countries that had not achieved sound fiscal positions in earlier years when the economic conditions were more favourable are now struggling to keep their budgets under control. Looking ahead, it is crucial to underpin the fiscal policy framework with decisive action, strong peer pressure and consistent implementation of the rules of the Treaty and of the Stability and Growth Pact. Countries should maintain budgetary positions close to balance or in surplus over the cycle, and, where this is not yet the case, take the required structural consolidation measures. This also creates the necessary room for the operation of automatic stabilisers. At the same time, governments are advised to place the emphasis on growth-oriented consolidation policies that strengthen the productive forces of the economy. By strengthening confidence, a credible medium-term fiscal consolidation strategy will also support economic growth in the short term.","Finally, structural reforms are essential to increase the euro area's growth potential and enhance its ability to better withstand external shocks. Indeed, such reforms, which should aim to reduce rigidities in labour and goods markets, could significantly strengthen the degree of resilience of economic activity to such shocks, both in the euro area as a whole and in its regions. Renewed momentum in the process of structural reform will be important to foster consumer and investor confidence in medium and long-term growth and employment opportunities in the euro area. This, in turn, should also have a positive short-term effect on spending and investment decisions in the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","Following a comprehensive economic and monetary analysis, we have concluded that the outlook for price stability over the medium term has improved significantly since our last decision to lower interest rates in March. As a result, we have decided to reduce our key interest rates by 50 basis points. This decision is in line with our monetary policy strategy, including the aim of maintaining inflation rates below but close to 2% over the medium term. At the same time, this interest rate reduction takes into account the downside risks to economic growth. The Governing Council will continue to monitor carefully all factors which are relevant to its assessment.","Let me explain our assessment in detail.","In the context of our economic analysis, the latest data releases on real GDP growth have confirmed that economic activity in the euro area remained subdued in the first quarter of this year. This outcome also reflects the negative impact of the Iraq crisis on both the global economy and the euro area. However, the survey evidence for April and May does not suggest an immediate improvement after the resolution of this conflict and is at best mixed. Accordingly, economic growth in the first half of 2003 is likely to be very weak, and expectations for annual average economic growth for this year and for 2004 have had to be scaled down.","Nevertheless, we still expect a gradual strengthening of real GDP growth in the course of 2003, which should gather more pace next year. All available forecasts as well as recent financial market reactions seem to reflect a similar assessment. The main factors supporting this outlook are both external and domestic in nature.","On the external side, the expected upturn in extra-euro area demand should compensate for the dampening effect of the appreciation of the euro. Evidently, the significant and rapid appreciation of the euro over recent months will dampen external price competitiveness. However, the current level of the euro's real effective exchange rate, and thereby the competitive position of euro area exporters, is very close to longer-term averages. Thus, when put into perspective, current euro exchange rate levels are in line with economic fundamentals and with our interest in a strong and stable euro.","On the domestic side, private consumption growth should recover further from the second half of 2003 onwards. This would reflect the growth in real disposable income supported by positive terms of trade effects and lower inflation rates. Moreover, there are no significant imbalances in the household sector as a whole that would hinder such a recovery. At the same time, the contribution of investment to growth is likely to remain more modest, although an improvement in the global economic environment and the historically low level of interest rates should contribute to an upswing.","The Governing Council is conscious of the continuing downside risks to economic growth. Notably, risks stem from the past accumulation of macroeconomic imbalances outside the euro area, and there are ongoing concerns with regard to the SARS virus. In addition, some uncertainty remains as to the extent of the adjustment still needed in the euro area corporate sector to enhance productivity and profitability. This could also have an impact on employment growth and thus private consumption.","Given this environment, the outlook for price developments has become more favourable. Following Eurostat's flash estimate of the inflation rate for May of 1.9%, annual inflation rates are expected to hover broadly around this level for the remainder of this year and to fall significantly in 2004. This assessment is based on the assumption of favourable import prices, reflecting both generally stable oil price developments and the higher exchange rate, as well as lower domestic price pressure in the context of a moderate economic recovery. In particular, wage growth is expected to remain broadly stable. Coupled with productivity gains, this should therefore result in a moderation of unit labour costs.","In the context of our monetary analysis, we saw persistent strong growth in the broad monetary aggregate M3. Consequently, the euro area economy has continued to accumulate liquidity significantly above the amount needed to sustain non-inflationary growth.","There are, however, several considerations which counterbalance concerns that this ample liquidity will lead to inflationary pressures over the medium term. In particular, monetary developments continue to be fostered by portfolio shifts, reflecting a sustained preference on the part of investors for liquid and secure assets. This is confirmed by evidence from both the components and counterparts of M3. Indeed, loans to the private sector increased at a much more moderate pace than M3. Moreover, higher monetary growth was accompanied by a much lower net acquisition of foreign equity by non-MFI euro area residents, also implying portfolio reallocations away from riskier assets. Consequently, the portfolio shifts that have affected M3 growth over the past two years should unwind over time. Finally, the perspective that economic activity will remain moderate reduces the likelihood of excess liquidity giving rise to increased spending. Nevertheless, one has to bear in mind that monetary growth is also supported by the low level of interest rates. Therefore, monetary developments need to be closely monitored with respect to their implications for price stability over the medium to long term.","Summing up our economic analysis, it currently appears that inflation rates should decline to below 2% over the medium term, following recent movements in the exchange rate of the euro and given the sluggish growth performance of the euro area. Our monetary analysis indicates that the strong expansion of M3 should not for the time being adversely affect this outlook. Hence, cross-checking the information from the two pillars leads us to conclude that the outlook for price stability over the medium term has become more favourable.","Let me at this point comment on the debate about the hypothetical risk of deflation. As far as the euro area is concerned, it should be recalled that inflation has been hovering around 2% for quite some time and that there are currently no forecasts indicating any deflationary risks. The ECB's monetary policy aims at inflation of below but close to 2% over the medium term. In this respect, inflation expectations should remain well anchored at this level, irrespective of shorter-term developments in prices. At the regional level, a period of relatively low price increases or even price level declines will improve a region's competitiveness within the currency area. Within a monetary union, deflation is not a meaningful concept when applied to individual regions.","At this juncture, it may be particularly warranted to stress that monetary policy cannot by itself generate lasting and sustainable growth and employment in the euro area. This can only be achieved by appropriate structural measures that address fundamental weaknesses and tackle urgent adjustment requirements. In this respect, fiscal policies have a great potential for fostering confidence and thereby supporting activity, even in the short run. Establishing a well designed medium-term consolidation strategy in those countries currently struggling with increasing fiscal imbalances would make a major contribution in this direction. This would imply comprehensive and growth-friendly measures including, in particular, a courageous reform of the structure and level of public expenditure. Curbing spending growth would eventually also create further room for manoeuvre to address future pressure arising from pension systems and scope for future tax cuts. Procedurally, it is crucial to underpin the fiscal policy framework with a decisive and consistent implementation of the rules of the Treaty and of the Stability and Growth Pact, and rigorous monitoring and peer pressure amongst Member States.","By the same measure, bold structural reforms in the labour and product markets would not only increase the euro area's growth potential and enhance its ability to better withstand external shocks, but it would also eliminate a great deal of the uncertainty currently overshadowing long-term planning and perspectives. This, in turn, would also have positive effects over the shorter term. In particular, renewed momentum in the process of structural reform would foster consumer and investor confidence and thereby greatly facilitate spending and investment decisions in the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB, which was also attended by the President of the ECOFIN Council, Mr. Tremonti.","Following our regular economic and monetary analysis, we have concluded that the current monetary policy stance is appropriate in view of the favourable outlook for price stability over the medium term. Accordingly, we have decided to leave the key ECB interest rates unchanged. Interest rates in the euro area are low by historical standards, both in nominal and real terms, thus lending support to economic activity and helping to safeguard against downside risks to economic growth. The Governing Council will continue to monitor carefully all factors that might affect this assessment.","Allow me to explain our assessment in detail.","In the context of our economic analysis, the latest data and information continue to suggest that economic growth in the euro area remained subdued in the second quarter of the year, after virtually stagnating in the first quarter. The indicators available broadly point to a stabilisation of activity but there are no signs as yet of an underlying strengthening in production and confidence. At the same time, financial market developments seem to reflect a somewhat more optimistic assessment of the economic outlook both inside and outside the euro area. On the whole, we continue to expect a gradual strengthening of economic activity in the euro area. This should be supported by lower inflation and thus higher real disposable income, the low level of interest rates, and a recovery in external demand for euro area goods and services. This assessment is in line with all available forecasts and projections.","Nevertheless, downside risks to this main scenario are still relevant. While concerns over the SARS virus have faded, there are risks relating in particular to the accumulation of macroeconomic imbalances outside the euro area and to the extent of the adjustment still needed in the euro area corporate sector to enhance productivity and profitability.","Turning to price developments, the outlook over the medium term remains favourable. For the remainder of this year, annual HICP inflation rates are expected to fluctuate around the current level of 2%, the rate recently estimated by Eurostat for June. In early 2004 a significant base effect related to energy prices should lead to a marked fall in annual HICP inflation rates, assuming broadly unchanged oil prices and exchange rates. Subsequently, the exchange rate pass-through and a moderate economic recovery should contain price pressures. In this respect, wage developments in particular are expected to remain consistent with a favourable outlook for price stability. Other price indicators, such as developments in producer prices, tend to support this picture. Moreover, all available forecasts and projections as well as indicators of inflation expectations point in the same direction, namely that price stability in line with our aim of inflation below but close to 2% will be maintained over the medium term.","In the context of our monetary analysis, substantial excess liquidity has accumulated in the euro area as a consequence of the extended period of high M3 growth. This strong growth has continued in recent months, as economic uncertainty and the low level of interest rates across the whole maturity spectrum have increased the attractiveness of holding liquid assets. At the same time, the low level of interest rates has helped support recent growth in loans to the private sector. While the large amount of excess liquidity should be less of a concern in a period of moderate economic activity, monetary developments need to be closely monitored in terms of their implications for price stability over the medium to long term.","To sum up, our economic analysis confirms the expectation that price dynamics will remain moderate in the euro area in the context of a gradual economic recovery and the strengthened euro exchange rate. The monetary analysis indicates that the strong expansion of M3 should, for the time being, not be seen as adversely affecting this outlook. Hence, cross-checking the information from the two pillars leads to the conclusion that the outlook for price stability over the medium term remains favourable.","With medium-term inflation expectations firmly anchored at levels consistent with price stability, and with interest rates at historical lows, monetary policy has made a significant contribution to improving the conditions for a recovery in economic growth. However, other policy-makers also have to assume their responsibilities. Part of the weakness in economic growth in the euro area can be linked to a lack of ambition in the areas of fiscal and structural reform to further improve the conditions for investment and employment.","A strong commitment to the Stability and Growth Pact and adherence to well designed medium-term fiscal consolidation strategies in those countries currently struggling with increasing fiscal imbalances would make a major contribution to improving confidence. In a similar way, progress in structural reforms in the labour and product markets would not only increase the euro area's growth potential and enhance its ability to better withstand external shocks, but it would also eliminate a great deal of the uncertainty currently clouding long-term planning and prospects.","In the current situation, characterised by subdued economic growth and low confidence, structural reform and a steady and reliable course of fiscal policy, in line with the European fiscal framework, are of the highest priority.","We are now at your disposal for questions.","Ladies and gentlemen, I would like to report on the outcome of today's meeting of the Governing Council of the ECB.","Today the Governing Council decided to leave the key ECB interest rates unchanged. Following our regular economic and monetary analysis, we concluded that the current level of ECB interest rates remains appropriate, as the medium-term outlook for price stability continues to be favourable. The historically low interest rates are lending support to economic activity. The Governing Council will carefully monitor all factors that might affect this assessment.","I will now explain the considerations underlying our decision in more detail.","Starting with the economic analysis, recent data confirm that real economic activity in the euro area was very weak in the second quarter of 2003, with the Eurostat flash estimate suggesting zero quarterly real GDP growth. However, survey data – which indicate that confidence is growing – as well as recent financial market developments are in line with our main scenario of a gradual upturn in economic activity. In line with available forecasts and projections, we continue to expect this upturn to start in the second half of the year and then to strengthen further in the course of 2004. The factors supporting the expected pick-up in activity are both external and domestic. As regards external factors, recent data signal that a recovery is already underway in several parts of the world. This should lead to an increase in euro area export demand, counteracting the effects of the loss of price competitiveness. On the domestic side, ongoing adjustment efforts by companies to enhance competitiveness and profitability should improve the conditions for an economic upswing. In this environment, the low level of interest rates is strengthening incentives to invest. Furthermore, real disposable income in the euro area should be positively affected by terms-of-trade effects stemming from the past appreciation of the euro.","Downside risks to this main scenario for economic growth have declined over the past couple of months but have not disappeared. Macroeconomic imbalances in some regions of the world persist. Although these may not affect the short-term economic dynamics, they constitute risks over the longer run. In addition, high oil price levels may continue to have adverse effects on economic activity in the euro area.","As regards price developments, Eurostat's flash estimate for annual HICP inflation in August was 2.1%. While recent oil price developments imply some short-term upward pressure on inflation rates, the broad picture of annual HICP inflation hovering around 2% during the remainder of this year remains unchanged. In 2004 annual inflation rates should fall below 2%, stabilising at levels consistent with price stability. This expectation is based on the assumption of moderate wage developments in the context of a gradual economic recovery. Moreover, the significant past strengthening of the external value of the euro should continue to have lagged effects which will limit upward pressure on prices, despite some recent corrections in the level of the euro exchange rate. Over longer time horizons, inflation expectations in the euro area seem to be well anchored at levels below but close to 2%.","Turning to the monetary analysis, monetary growth remained strong in recent months and there is significantly more liquidity available in the euro area than is needed to finance non-inflationary growth. In part, this is due to past portfolio shifts and possibly to an increase in monetary holdings related to precautionary motives. Moreover, the low level of interest rates has contributed to the high demand for liquid assets. The current level of interest rates is also counterbalancing the negative impact of subdued economic growth on credit demand. In fact, the growth of loans to the private sector has remained relatively robust since the beginning of the year.","At the current juncture, the ample liquidity is not expected to translate into inflationary pressure. However, monetary growth needs to be closely monitored as the significant amounts of excess liquidity could become a source of concern if they were to persist when economic activity strengthens significantly.","Summing up and cross-checking the information from the two pillars, our economic analysis confirms the expectation that price pressures will remain subdued in the coming years, in the context of a gradual economic recovery and moderate import price and wage developments. The strong monetary expansion should, in view of the economic situation, not be seen as adversely affecting this outlook for the time being. Overall, therefore, the medium-term outlook for price stability remains favourable.","The Governing Council took note with great concern of recent fiscal developments. In order to maintain the credibility of the institutional and economic underpinnings of EMU, it is fundamental to abide in all respects by the rules of the Stability and Growth Pact. As concerns the upcoming budget plans for 2004, a correction of excessive deficits within the agreed time frame is essential, with an annual structural consolidation effort of at least 0.5% of GDP for countries with fiscal imbalances. Fiscal plans need to be part of a comprehensive and credible medium-term strategy with emphasis on expenditure restraint and growth-oriented restructuring. Sound fiscal policies will help to boost investor and consumer confidence and enhance the prospects for stronger economic growth in the euro area.","Progress in implementing structural reforms is as important as fiscal prudence. Efforts to bring public pension systems onto a sustainable path and to further develop private pension schemes deserve support. At the same time, more reforms are needed to reduce structural rigidities in labour and goods markets. Such reforms are essential for addressing what is perceived to be the main economic problem of the euro area, namely the high level of structural unemployment.","I am now at your disposal for questions.","Ladies and gentlemen, the Governing Council of the European Central Bank today met for the eighth time outside Frankfurt. I would like to thank both Governor Constâncio for his invitation and generous hospitality, as well as the staff of the Banco de Portugal for an excellently organised meeting.","Turning to business, we have decided to leave the key ECB interest rates unchanged. The basic components of our economic and monetary analysis remain in place. In particular, the medium-term outlook for price stability continues to be favourable, allowing us to conclude that the historically low level of ECB interest rates remains appropriate. This also lends ongoing support to economic activity. We will continue to carefully monitor all developments which might affect our assessment.","The more detailed considerations underlying our decision are as follows:","Starting with the economic analysis, real GDP growth in the euro area was virtually stagnant in the first half of this year. However, the latest data and information are consistent with a moderate pick-up in activity in the second half. In particular, there are signs that economic activity might have firmed somewhat in the third quarter, and confidence indicators available up to September generally point to some improvement in economic expectations. In line with available forecasts and projections, this upturn should gradually strengthen in the course of 2004. Externally, the recovery in world economic activity appears to be proceeding. This should support demand for euro area exports, counteracting the effects of the deterioration in price competitiveness. Domestically, companies seem to be continuing their adjustment efforts to enhance productivity and profitability. This, together with the low level of interest rates, should contribute to a recovery in investment. Furthermore, terms-of-trade effects stemming from the past appreciation of the euro should positively affect real disposable income in the euro area, and thereby private consumption. Developments in financial markets are generally consistent with this overall picture.","The short-term risks to our main scenario of a gradual recovery appear to be broadly balanced. However, some risks to the sustainability of economic growth at the global level remain. These are related to the medium-term sustainability of public finances in major industrialised countries and, in this connection, the adjustment of external imbalances in some regions of the world.","Turning to the outlook for prices, according to Eurostat's latest flash estimate, HICP inflation in September was 2.1%. This was unchanged from August. For the remainder of this year, HICP inflation should hover at around 2%. Exchange rate developments help to contain short-term upward pressure on prices, while higher unprocessed food prices related to the hot and dry weather conditions in some euro area countries could imply some limited upward risk over the next few months. For early 2004, there is still some uncertainty about the precise impact on HICP inflation of planned increases in indirect taxes and administered prices in a number of euro area countries. Looking beyond the short term, however, we continue to expect inflation to fall below 2% in 2004 and to remain in line with price stability thereafter. This expectation is based on the assumption of moderate wage developments in the context of a gradual economic recovery. In this respect, we note that inflation expectations in the euro area are anchored at levels below but close to 2% over the medium to long term.","Turning to the monetary analysis, the strong monetary growth over the past two years has been fuelled by past portfolio shifts, precautionary saving and the low level of interest rates. The latter factor also provided a counterweight to the negative impact of weak economic growth on loan developments. In fact, there are signs of a pick-up in the growth rates of loans to the private sector.","At the current juncture, the accumulation of excess liquidity is not a cause for concern given the subdued economic growth in the euro area. However, if it were to persist in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.","Summing up and cross-checking the information from the two pillars, our economic analysis continues to confirm the expectation that price pressures will remain subdued in the coming years, in the context of a gradual economic recovery and moderate import price and wage developments. In view of the economic situation, the strong monetary expansion should not be seen as adversely affecting this outlook for the time being. Overall, therefore, the medium-term outlook for price stability remains favourable.","As regards fiscal policy, we would like to reiterate our serious concerns. There is growing evidence that most countries will miss their budgetary targets for 2003 by a significant margin and, in a number of cases, budgetary plans for 2004 are not reassuring. While the deterioration of budgetary balances mainly reflects the lower-than-anticipated economic growth, it is worrying to see that not all countries with severe imbalances have so far introduced sufficient consolidation measures. It is fundamental that the credibility of the institutional underpinnings of EMU be maintained.","In this respect, let me stress that the Treaty and the Stability and Growth Pact provide an appropriate framework for maintaining fiscal discipline within adequate bounds of flexibility. Far from being a mechanical scheme to constrain fiscal policies, the excessive deficit procedure establishes a sequence of incentives for countries to prevent and correct severe budgetary imbalances. At each instance of this sequence, a country's fiscal efforts and changes in the economic environment are assessed and taken into account in the design of further steps. Countries are therefore continuously made aware of the risks and costs arising from any delay in taking policy action to preserve the sustainability of public finances. To maintain the credibility of the fiscal policy framework it is essential to fully abide by its rules and to implement them in every respect. Doing so and complying with the requirements of the ECOFIN Council will lead to positive confidence and growth effects, which can be strengthened if fiscal plans are part of a comprehensive and credible medium-term strategy with emphasis on structural expenditure reform.","Finally, although it might mean stating the obvious here in Lisbon, the Lisbon Strategy, which was agreed upon back in March 2000, is of the utmost importance in the process of implementing structural reforms. More reforms are urgently needed to reduce structural rigidities in labour and goods markets so as to address the main economic problem of the euro area, namely the high level of structural unemployment. At the same time, current efforts to set in motion important changes in pension and health systems and in other areas in order to prepare for the ageing of society are of immense significance in ensuring the sustainability of our social security systems.","Let me close with a few personal remarks. As you are aware, this will most probably be the last press conference following a meeting of the Governing Council that I will chair. From my perspective, these press conferences have been a success. Their purpose is to inform the media and the general public in detail, and on an almost \"real-time\" basis, about the outcome of Governing Council meetings. They have allowed us to communicate and clarify our policy decisions in an open and transparent manner. Indeed, in my view, this practice makes the ECB one of the most transparent central banks in the world. I would like to take this opportunity to thank the media for their work over the five-and-a-half years in which I have had the privilege of being at the helm of the Governing Council. I wish you all the best.","We are now at your disposal for questions.","Ladies and gentlemen,","Today marks the first time that I had the honour and the pleasure of chairing the meeting of the Governing Council of the ECB. I am delighted to now proceed with our well-established practice of real-time communication and to report on the outcome of our meeting, together with the Vice-President.","Following our regular economic and monetary analysis, we have decided to leave the key ECB interest rates unchanged at their low levels. Overall, we anticipate some further stickiness of inflation rates in the shorter term, while the medium-term outlook for price stability remains favourable. Against this background, we continue to judge the current stance of monetary policy as appropriate. At the same time, we see additional signs of a gradual economic recovery in the euro area. We will carefully monitor all developments that might affect our assessment of risks to price stability.","Let me now explain our decision in more detail.","Starting with the economic analysis, new data and other information show that the recovery of the world economy is clearly making progress. Also for the euro area, the indicators are increasingly pointing towards some improvement in economic activity in the second half of this year. For the time being, this is primarily reflected in business surveys and leading indicators, but we expect that forthcoming data on euro area production and demand will confirm that a gradual recovery has started.","Taken together, we see further confirmation of our main scenario of a gradual improvement in economic activity this year, and a broadening and strengthening in the course of 2004. This assessment has received support from recently published forecasts of official and private sources, as well as from developments in financial markets. Externally, the expansion of global economic trade and real GDP growth should counteract the changes in the effective exchange rate of the euro, which is back to its level of early 1999. Domestically, the conditions for investment should improve further, given the continued adjustment efforts of firms to enhance productivity and profitability, the low level of interest rates and generally favourable financing conditions. Moreover, private consumption should benefit from real disposable income growth, fostered by positive terms-of-trade effects stemming from the past appreciation of the euro.","The short-term risks to our main scenario appear to be balanced. Over a longer horizon, we remain concerned about the sustainability of global economic growth being undermined by persisting imbalances. This relates, in particular, to the sustainability of public finances and to external imbalances in some regions of the world.","Recent inflation rates, measured by the HICP, developed broadly as anticipated. The annual rate of inflation was 2.1% in October, according to Eurostat's flash estimate. It thus remained unchanged from August and September. When looking ahead over the shorter term, it appears that inflation rates may continue to hover around this level for several months to come and, hence, may not fall as quickly and strongly as had been expected up to the summer. Three factors can be identified as contributing to this stickiness of inflation rates. First, in the remainder of 2003 and early 2004, unprocessed food prices could imply some limited upward pressure as a consequence of this summer's heat wave. Second, oil prices remain higher than expected, owing to political uncertainties in the Middle East. Last but not least, in the course of 2004, planned increases in indirect taxes and administered prices in some euro area countries will have an upward impact on inflation.","However, when taking into account more lasting factors, we continue to expect inflation rates to moderate over the medium term and to develop in line with price stability. This expectation is based on the assumption that wage developments will not be affected by the current inertia of inflation rates, and will remain moderate in the context of a gradual economic recovery. Moreover, the past appreciation of the euro should continue to dampen price pressures. These views are also reflected in recently released forecasts. At the same time, inflation expectations warrant close monitoring.","Turning to the monetary analysis, after an extended period of strong M3 growth, liquidity in the euro area remains ample, despite a certain slowdown in monetary expansion over recent months. This situation of persistently more liquidity than is needed to finance non-inflationary economic growth reflects past portfolio shifts, precautionary savings and the low level of interest rates. The low level of interest rates also supported the annual growth of loans to the private sector, which fluctuated between 4½% and 5% in recent months. At the current juncture, the accumulation of excess liquidity is not of concern for price stability, given the economic outlook. However, if it were to continue in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.","Cross-checking the information from the two pillars, our economic analysis indicates that the medium-term outlook for price stability remains favourable, in the context of a gradual economic recovery and moderate import price and wage developments. In view of the economic situation, the strong monetary expansion should not, for the time being, be seen as adversely affecting this outlook.","Fiscal developments and the Stability and Growth Pact are now at a critical point at which the credibility of the institutional underpinnings of EMU must be maintained. The Treaty and the Stability and Growth Pact provide an appropriate framework for ensuring fiscal discipline, within adequate bounds of flexibility. The deficit reference value of 3% of GDP, which is laid down in the Maastricht Treaty itself, is the nominal anchor for the rules and procedures governing fiscal policies in the EU. This anchor must not be placed in doubt.","Fully abiding by the rules and implementing them in every respect has very solid economic justifications, and is not a mere procedural matter. Upholding trust in the soundness of public finances enhances confidence of all economic agents and thereby contributes to sustainable growth in consumption and investment. Stability and growth are thus not conflicting objectives, but rather reinforce each other – a fact which is very well captured in the title of the fiscal framework called the \"Stability and Growth Pact\". Concerning recent developments in the context of the excessive deficit procedure, it is the view of the Governing Council that the proposals of the Commission push the room for interpretation of the rules and procedures to the limit. As regards future decisions, which are expected in the course of November, the Governing Council strongly urges each institution and government concerned to live up to their responsibilities. It is the overall credibility of the fiscal framework and, hence, the prospects for economic growth in the euro area that are at stake.","Fiscal consolidation plans are best placed within a comprehensive and credible medium-term strategy. This requires strong emphasis on structural expenditure reforms and the adaptation of public pension and health systems to the challenges arising from the ageing of the population. Moreover, structural reforms in the labour and product markets are needed to allow a better allocation and utilisation of capital and human resources, and to enhance the euro area's growth potential. The Governing Council strongly supports current efforts by a number of governments in this direction and also encourages social partners to fully commit themselves to the objective of making the euro area a more dynamic and innovative economy.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","Following a comprehensive economic and monetary analysis, we concluded that the monetary policy stance remains appropriate to preserve price stability over the medium term. Accordingly, we left the key ECB interest rates unchanged at their low levels. While annual inflation rates are likely to fluctuate around 2% over the coming months, a gradual and limited decline should take place later on. We also noted that the economic recovery in the euro area has started and that confidence has strengthened further. We will continue to carefully monitor all developments that might affect our medium-term assessment of risks to price stability.","We also discussed the potential implications of the deeply regrettable developments at the ECOFIN Council meeting on 25 November. As we already stressed in our statement on the same day, these developments risk undermining the credibility of the institutional framework and the confidence in sound public finances of Member States across the euro area. Let me add that a credible fiscal framework is key not only to stability but also to growth, and is a precondition for low risk premia in financial markets to be preserved.","I shall now explain our assessment in more detail.","In the context of our economic analysis, the latest data releases confirmed that economic activity in the euro area has picked up. Real GDP growth in the third quarter reflects the strong momentum of the world economy, which we assume will continue next year.","We expect that domestic demand will start improving. Private consumption should be supported by positive terms-of-trade effects due to the past appreciation of the euro. With the usual lag, it should also profit from an increase in employment growth. Business investment is expected to recover gradually, mainly helped by an expansion of external demand, the low level of interest rates and generally favourable financing conditions. Moreover, it should increasingly benefit from the adjustment efforts of the corporate sector to enhance productivity and profitability.","Taken together, we look forward to a gradual recovery in euro area economic growth over the next quarters, leading to a broader and stronger upswing in the course of next year and the year after. The risks to this scenario appear to be balanced. Over a longer horizon, we remain concerned about the sustainability of global economic growth being undermined by external imbalances in some parts of the world economy.","Concerning prices, the latest information is in line with earlier expectations. According to Eurostat's flash estimate, annual HICP inflation was 2.2% in November, following a rate of 2.0% in October. Similar rates have prevailed for most of this year and this inertia of inflation rates at around 2% is likely to continue in the coming months. Due to adverse food price developments, the evolution of oil prices and planned increases in indirect taxes and administered prices, inflation rates will fall neither as quickly nor as strongly as was expected earlier in the year.","However, when assessing price trends over the medium term, a number of factors should dampen inflationary pressures. First, given the past appreciation of the euro, import prices should contribute to this effect. Second, domestic cost pressures should remain moderate. In particular, wage growth should be contained in the context of a recovery which, for the time being, is expected to remain gradual. Provided that wage moderation can be preserved, which is indispensable for fostering employment, a cyclical recovery in productivity tends to dampen growth in unit labour costs, which has thus far been relatively high when judged against the weakness of the economy.","Overall, these views are also reflected in recently released forecasts and seem to be in line with survey data and financial market expectations. Accordingly, there is a rather broad consensus on the main scenario. At the same time, this outlook for price stability is conditional on quite a number of assumptions, such as those on global developments, oil prices, exchange rates, wage developments and fiscal measures. Therefore, elements of risk to the outlook for price stability need to be kept in mind. In this respect, we noted that financial market indicators for inflation expectations have shown some upward momentum over recent months. While technical factors might also have played a role in the movement of these indicators, and other indicators have remained broadly unchanged, inflation expectations warrant close monitoring.","Turning to the monetary analysis, M3 growth has been very strong over the past two years, reflecting portfolio shifts, precautionary savings and the low level of interest rates. The low level of interest rates has also supported the growth of credit demand. In our assessment, the accumulation of excess liquidity is not of concern for price stability at the current juncture, given that, for the time being, the economic recovery is only gradual. However, should high excess liquidity continue to prevail once there is a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term. We will therefore continue to carefully examine monetary developments.","In summary, the economic analysis indicates that the main scenario for price developments in the medium term continues to be in line with our definition of price stability. This picture is confirmed by cross-checking with the monetary analysis.","Turning to fiscal policies, I have already mentioned that we expressed deep regret following the ECOFIN Council meeting on 25 November. Furthermore, we stressed our support of the Commission's views on the ECOFIN Council's Conclusions. We also took note of the commitments made by France and Germany to correct their excessive deficits as rapidly as possible and at the latest by 2005. Moreover, we noted that the ECOFIN Council stands ready to take a decision under Article 104(9), on the basis of the Commission recommendation, should the two governments fail to act in accordance with their own commitments. We strongly urge the governments concerned to live up to their responsibilities. Confidence in the soundness of public finances is essential for sustainable growth in consumption and investment.","The overall fiscal framework of the Stability and Growth Pact remains of central importance and should be fully respected. The same applies to the requirement to avoid excessive deficits, laid down in Article 104 of the Treaty, and to the reference values of 3% and 60% for the deficit and debt-to-GDP ratios respectively, specified in the Protocol on the excessive deficit procedure annexed to the Treaty. These are the foundations for trust and confidence in EMU.","Trust and confidence are also crucial in the context of structural reform. Enhancing the competitiveness of the euro area, in particular in labour and product markets, increasing the efficiency of the tax systems and ensuring the sustainability of social security schemes all foster a better allocation and utilisation of capital and human resources. There is no doubt that measures in these respects improve the growth perspectives of the euro area. However, in order to foster confidence in the shorter term, convincing assurance must be given that these challenges are indeed being tackled in a decisive manner and that clear action is being taken. While some progress has been made, the Governing Council strongly encourages governments to accelerate the implementation of structural reforms and also calls upon social partners to fully commit themselves to the objective of making the euro area a more dynamic and innovative economy.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to the first press conference of 2004. Let me express the Vice-President’s and my own best wishes to you all for the New Year. We will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by the President of the ECOFIN Council, Mr McCreevy, and Commissioner Solbes.","Following our regular economic and monetary analysis, we continue to judge the current stance of monetary policy as appropriate to preserve price stability over the medium term. Accordingly, we have decided to leave the key ECB interest rates unchanged at their low levels. The available indicators point to an ongoing economic recovery in the euro area. This assessment has not fundamentally changed. Although recent exchange rate developments are likely to have some dampening effects on exports, export growth should continue to benefit from the dynamic expansion of the world economy. Import price developments in the euro area should become somewhat more favourable, thereby helping to contain inflationary risks. We will continue to carefully monitor all developments that could affect our assessment of risks to price stability over the medium term.","Let me now explain our decision in more detail.","Starting with the economic analysis, recently available indicators confirm that world economic growth is progressing. For the euro area too, the latest information on production and confidence is consistent with an ongoing recovery in economic activity, and the momentum for growth should strengthen in the course of 2004. This assessment is supported by all available forecasts from official and private sources, as well as by developments in the financial markets.","On the external side, recent exchange rate developments are having a negative impact on the price competitiveness of euro area exporters, but thus far this should be partly compensated for by the ongoing expansion of global demand. Overall, euro area exports should therefore continue to grow. On the domestic side, investment growth should benefit from the ongoing adjustment efforts of firms to enhance productivity and profitability, as well as from the low level of interest rates and generally favourable financing conditions. Private consumption should receive support from real disposable income growth, partly due to favourable effects on terms of trade and inflation stemming from the past appreciation of the euro.","The short-term risks to this outlook remain balanced. Over longer horizons, the uncertainties continue to be related to persistent external imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth. This is a challenge to be addressed by sustainable macroeconomic policies and structural reforms which foster a sound balance between savings and investment in all major partner countries, enhance the production potential in the euro area and support a further expansion in trade of goods and services at the global level.","With regard to price developments, HICP inflation rates over the short term are still expected to fluctuate around the 2% level, following a rate of 2.1% in December, according to Eurostat’s flash estimate. As I have explained on previous occasions, adverse food price developments, the evolution of oil prices and increases in indirect taxes and administered prices have all adversely affected the short-term outlook for inflation.","However, in the course of this year we expect inflation rates to fall and to remain in line with price stability thereafter. This expectation is based on the assumption that wage developments will remain moderate in the context of a gradual economic recovery. Moreover, the past appreciation of the euro should dampen price pressures. These views are also reflected in the available forecasts and projections. We are, of course, fully aware of the conditional nature of these forward-looking exercises and therefore bear in mind all elements of risk to the outlook for price stability. In the same vein, we continue to closely monitor inflation expectations.","Turning to the monetary analysis, the strong monetary growth of the last few years means that there is significantly more liquidity available in the euro area than needed to finance non-inflationary growth. At the same time, the growth of loans to the private sector has been rising over recent months, benefiting from the low level of interest rates and the general improvement in the economic environment.","In our view, the accumulation of excess liquidity should not be of concern for price stability as long as the economic recovery is gradual. However, should excess liquidity remain high once there is a significant strengthening of economic activity, it could lead to inflationary pressures over the medium term. We will therefore carefully examine monetary developments as they unfold.","In summary, the economic analysis continues to indicate that the main scenario for price developments in the medium term is in line with price stability. This picture is confirmed by cross-checking with the monetary analysis.","Concerning fiscal policies, 2004 will be a crucial year for strengthening the credibility of the institutional framework and confidence in the soundness of public finances of Member States across the euro area. Together with the Treaty provisions, the overall fiscal framework of the Stability and Growth Pact remains of central importance and must be fully respected. These are the foundations for trust and confidence in EMU. They are key not only to stability but also to growth, and are a precondition for preserving low risk premia in financial markets. We therefore strongly urge governments and the ECOFIN Council to live up to their responsibilities and to the commitments they made last November.","Finally, the Governing Council strongly supports ongoing efforts by a number of governments to proceed with structural reforms – in the fiscal domain, and in labour and product markets. Building on what has already been implemented, further reforms are required to make the euro area economy more flexible, to allow a better allocation and utilisation of capital and human resources, and to enhance the euro area’s growth potential. The process of structural reform would be greatly enhanced if social partners were to fully commit themselves to the objective of making the euro area a more dynamic, innovative and competitive economy. Such common efforts should help to better communicate to the public the benefits of effectively responding to the main challenges of the euro area: bringing down the high level of structural unemployment, enhancing the production potential, increasing productivity, reducing the inefficiencies of the tax system as well as preparing the health and pension systems for the ageing of the population.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to this press conference. The Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","On the basis of our economic and monetary analysis, we have concluded that there are no fundamental changes to the medium-term outlook for price stability. Accordingly, the current stance of monetary policy remains appropriate and the key ECB interest rates have been kept unchanged at their low levels. Inflationary risks should be contained by somewhat more favourable import price developments, while the economic recovery in the euro area should proceed in line with our expectations. We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term. With regard to exchange rates, we again particularly stress stability and remain concerned about excessive exchange rate moves.","Let me now explain our decision in more detail.","Starting with the economic analysis, the latest data on euro area production as well as survey evidence on business confidence remain consistent with ongoing growth around the turn of the year.","Looking ahead, the external environment of the euro area should continue to develop favourably. In particular, robust real GDP growth in our major trading partners’ economies can be expected to support foreign demand for euro area goods and services, while export growth may be dampened somewhat by the decline in price competitiveness.","The conditions for an improvement in domestic demand are also favourable. Investment activity should not only profit from global trends in demand, but also from companies’ efforts to enhance productivity and profitability, from the low level of interest rates and from generally favourable financing conditions. Growth in private consumption, which has so far remained rather subdued, can also be expected to recover in line with an increase in real disposable income. This assessment is reflected in all available forecasts from official and private sources and seems to be confirmed by developments in financial markets.","Looking at the risks to this outlook, there are no new factors to be taken into account. Over the shorter term, risks remain balanced. Over longer horizons, uncertainties relate to the persistent imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth. This calls for sustainable macroeconomic policies and structural reforms which foster a sound balance between savings and investment in all major partner countries, which enhance the production potential in the euro area and which support a further expansion in trade of goods and services at the global level.","Turning to price developments, we have seen a fall in the HICP inflation rate for December to 2.0%. The same rate was estimated by Eurostat for January. In the course of this year, inflation rates should fall below 2% and remain in line with price stability thereafter. While US dollar-denominated global commodity prices have been on an upward trend over recent months, the past appreciation of the euro is dampening their effects on domestic prices. Moreover, we continue to expect wage developments to remain moderate in the context of high rates of unemployment and a gradual economic recovery. Recent data on labour costs seem to broadly confirm the assessment of a levelling-off of wage increases. On the whole, inflationary pressure remains limited – an assessment that is confirmed by all available forecasts. Given the conditional nature of any forward-looking evaluation, it is of course important to bear in mind all elements of risk to the outlook for price stability and to monitor inflation expectations closely.","Turning to the monetary analysis, annual M3 growth has continued to moderate slowly over recent months. This can be explained by the still cautious reallocation of portfolios by economic agents and the effects of generally low interest rates on the growth of very liquid assets. At the same time, the growth of loans to the private sector reflects the effects of both low interest rates and an improvement in the economic environment.","The strong monetary growth over the past few years means that there is significantly more liquidity available in the euro area than needed to finance non-inflationary growth. Whether or not the accumulated excess liquidity will translate into inflationary pressures over the medium term depends on the extent to which past portfolios shifts are reversed and on the future strength of economic growth. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.","In summary, the economic analysis continues to indicate that the main scenario for price developments in the medium term is in line with price stability. Cross-checking with the monetary analysis does not alter this picture.","With regard to fiscal policies, there are several important issues that warrant close attention. First, the implementation of fiscal policies should be in line with the commitments made late last year. In this connection, a thorough assessment of the new Stability Programmes of Member States is currently under way. All parties involved need to live up to their responsibilities and commitments. Sound public finances support a stable macroeconomic framework, which in turn enhances confidence and promotes investment, growth and employment in the euro area.","Second, as regards the Stability and Growth Pact, the Governing Council shares the concerns of the European Commission regarding the conclusions of the ECOFIN Council in November last year. The Commission is the guardian of the Treaty and the ECB respects the Commission’s decision to seek legal clarity. Furthermore, we do not see a need to change the Treaty and, in our view, the Stability and Growth Pact in its current form is appropriate. We are in agreement with the Commission that the implementation of the Stability and Growth Pact could be further improved, in particular in terms of the analysis of structural imbalances and the strengthening of incentives for sound fiscal policies during good economic times. Clarity and enforceability of the fiscal framework should be enhanced.","A stable macroeconomic framework is necessary to enhance our growth potential, but it alone is not sufficient. Boosting employment, fostering labour productivity and making the best use of technological and scientific progress in the context of an ageing society all require structural reforms – in the fiscal domain as well as in financial, product and labour markets. The Lisbon Strategy provides the appropriate blueprint for progress. The responsibility for its implementation, however, lies with governments, parliaments and social partners. The Governing Council strongly supports ongoing efforts in a number of countries to proceed with structural reforms. At the same time, we fully share the view that additional, sustained efforts are required, as recently reiterated by the Commission in its progress report on the implementation of the Lisbon Strategy and the priorities for 2004. It is a major challenge to convince the public at large that everybody would benefit – in terms of growth, more and better jobs, and higher incomes – if the reforms needed were indeed implemented.","Finally, allow me to add a short remark regarding the publications of the ECB. As you may have noticed, the ECB’s Monthly Bulletin has been enhanced in a number of ways relating to its design, structure and general presentation. The in-depth coverage of all economic and monetary aspects relevant to monetary policy has of course been maintained, together with the statistical information. However, we believe that the report is now more accessible to the Press, financial market participants, policy-makers, and academics and students, as well as those members of the general public with an interest in European economic and monetary affairs.","We are now at your disposal for questions.","Ladies and gentlemen, welcome again to our monthly press conference. The Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB.","Overall, the Governing Council confirmed its previous assessment of a favourable outlook for price stability in the euro area over the medium term. Against this background, we concluded that the current stance of monetary policy remains appropriate. The key ECB interest rates have therefore been left unchanged at their low levels. Our monetary policy stance provides support to the economic recovery in the euro area. We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.","Let me now turn to the details of our economic analysis. According to Eurostat, in the fourth quarter of 2003 real GDP in the euro area grew by 0.3% quarter on quarter, following growth of 0.4% in the third quarter. These data confirm that a gradual recovery in economic activity in the euro area took place in the second half of 2003. More recent indicators point to moderate economic growth also in early 2004. While growth has been relatively modest so far, both external and domestic factors give reason to expect a strengthening of the recovery through 2004 and beyond.","On the external side, all recent indications confirm that global economic growth in 2004 will be robust and broadly based across different regions of the world. Overall, euro area exports should grow significantly this year and next.","On the domestic side, the conditions for a recovery in private demand are in place. Over recent months there have been signs of a stabilisation in investment. According to Eurostat, fixed capital investment grew again in the last quarter of 2003, after recording three successive quarter-on-quarter declines. Corporate earnings have generally improved in the euro area, following a protracted restructuring of corporate balance sheets over the last few years. The financing conditions faced by corporations in the euro area are very favourable at present. All of these factors should support a further recovery in investment.","There are also reasons to expect a gradual increase in consumption growth during this year, following the subdued developments of last year. In the short term, growth in real disposable income is supported by lower import prices and tax cuts, while later on the gradual improvement in labour market conditions should become an additional factor supporting income growth and confidence. The financial situation of households in the euro area is sound, not least in comparison with a number of other industrial economies, and there is no financial impediment to a pick-up in private consumption.","For all these reasons, our main scenario of a continued gradual recovery in the course of 2004 and 2005 remains valid. This view is shared by available forecasts and projections, and is also broadly reflected in financial market developments.","We continue to see the risks to this scenario as broadly balanced. However, there are uncertainties related to euro area private consumption and the persistent imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth.","Turning to price developments, according to the Eurostat flash estimate, the annual HICP inflation rate declined to 1.6% in February 2004, from 1.9% in January. This fall was mainly due to base effects stemming from energy prices, as a sharp increase in oil prices which occurred in early 2003 dropped out of the calculation of the annual rate in February 2004. Over the coming months, volatility in annual inflation rates is likely to be observed, mainly due to further base effects from energy prices as well as to increases in indirect taxes. Related to this, annual inflation rates are likely to edge up again temporarily in the second quarter of 2004.","Looking beyond short-term fluctuations in the most volatile components of the HICP, we expect inflation to remain in line with price stability. At the current juncture, we see little upward pressure on inflation. Given the anticipated gradual nature of the recovery in economic activity and the high level of unemployment in the euro area, wage developments should remain moderate.","While our assessment is in line with available forecasts and projections, we are aware of the conditional nature of such exercises. We will therefore continue to monitor all indicators closely. Inflation expectations, in particular, deserve close attention.","Turning to the monetary analysis, M3 growth has moderated over recent months. However, it appears that the reallocation of economic agents' portfolios into longer-term assets is proceeding rather cautiously. In this respect, the generally low level of interest rates continues to support the demand for liquid assets. The low level of interest rates also supports the growth of loans to the private sector.","The high liquidity in the euro area needs to be assessed with caution. Its effects on inflation over the medium term will greatly depend on the extent and pace of the future reversal of past portfolio shifts and on the future strength of economic growth. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.","To sum up, the economic analysis continues to indicate that the main scenario for price developments in the coming years is in line with price stability. Cross-checking with the monetary analysis does not alter this picture for the time being.","With regard to fiscal policies, we noted the progress in fiscal consolidation envisaged in countries' stability programmes. Nonetheless, there continues to be reason for concern. In some countries, contrary to their commitments, adjustment efforts are insufficient to mitigate the risk of excessive deficits. Moreover, several countries do not plan to attain sound budgetary positions by the end of their respective programme horizons, despite favourable growth prospects. This would risk a repetition of the policy errors of the last economic upswing, when insufficient consolidation efforts and tax cuts without adequate expenditure restraint laid the foundations for the recent fiscal difficulties.","All countries would benefit from the strengthening of the sustainability of their public finances, especially in the expected upward phase of the cycle, by eliminating imbalances over the coming years and avoiding or correcting as soon as possible excessive deficits. Moreover, the determined implementation of comprehensive structural reforms, on both the expenditure side and the revenue side, will bring additional medium-term rewards in the form of higher growth and more sustainable public finances. Such consolidation and reform strategies are needed to secure a sound macroeconomic environment in the euro area.","The euro area also requires further structural reforms in financial, product and labour markets. The Lisbon Strategy provides the appropriate blueprint for progress. We welcome that the forthcoming spring meeting of the European Council is set to give renewed impetus to the Lisbon agenda, speed up the pace of reforms, and strengthen the effectiveness of the decision-making process. Structural reforms will have enormous benefits for the citizens of the euro area. These reforms are crucial for sustained non-inflationary growth and employment, and they are therefore also important for maintaining social cohesion in the long run.","Confidence among European citizens in the future is vital for a stronger economic recovery and sustained growth. The Governing Council recognises that the still low level of consumer confidence is related to prevailing uncertainties, including the debate about the appropriate path for structural reforms in many countries of the euro area. It is also partly linked to the continued perception by European citizens of higher inflation than measured by official indices.","The Governing Council notes that inflation is now back at a level consistent with price stability. The European public can rest assured about our determination to preserve the purchasing power of our money in the years to come and thus make our contribution to enhance confidence in the future. Stable prices, together with further progress in the implementation of necessary structural reforms, are the key to stronger confidence, and they create the conditions for increased consumption and investment and thus for growth and job creation.","We are now at your disposal for questions.","Ladies and gentlemen, welcome again to our press conference.","Before I proceed, I would like to remind you that I have conveyed the Governing Council’s sincere condolences to Jaime Caruana, Governor of the Banco de España, following the terrorist attacks in Madrid on 11 March 2004. I assured him of the Governing Council’s total solidarity with the Spanish people and the Banco de España.","The Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","On the basis of our regular economic and monetary analysis, we have not changed our assessment that the current stance of monetary policy remains in line with the maintenance of price stability over the medium term. Accordingly, the key ECB interest rates have been left unchanged. The low level of interest rates also provides ongoing support to the economic recovery in the euro area. We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.","Let me now provide a more detailed explanation of our decision, turning first to the economic analysis. With regard to real GDP growth, it appears that the recovery in the euro area has continued into 2004, following quarter-on-quarter growth rates of 0.3-0.4% in the second half of 2003. Recently released data on production and demand as well as confidence indicators have been mixed, implying some short-term uncertainty, while preliminary information available after the tragic events in Madrid on 11 March does not suggest a major impact on confidence. We will continue to monitor the situation closely. On balance, there is currently no evidence challenging the assessment of continued, though modest, real GDP growth in the euro area over the short term.","More fundamentally, the conditions remain in place for the recovery to continue in 2004 and to strengthen over time. First, global economic growth is robust and broadly based, both geographically and across sectors, thereby providing a positive external environment for the euro area. In this context, we expect euro area exports to grow significantly this year and next, despite some past losses in price competitiveness.","Second, on the domestic side, investment should be helped by favourable financing conditions, an improvement in corporate earnings and spillover effects from global demand trends. Some signs of an improvement in fixed capital investment are already discernible in the Eurostat data for the fourth quarter of last year. As regards private consumption, growth in real disposable income should lead to increased spending, in particular because there are no financial constraints for households which would pose obstacles to higher expenditure. Over time this should also be fostered by an improvement in employment and employment expectations.","This is our assessment and it is supported by the available forecasts and projections. Obviously, any such forward-looking evaluation is conditional and subject to risks. At this juncture, risks are primarily related to the persistent imbalances in some regions of the world and the weakness of private consumption in the euro area. Concerning private consumption, European citizens who still perceive that inflation is higher than measured by official indices should be assured that the official measures are accurate and that we will continue to maintain price stability in the future. Moreover, the prevailing uncertainties surrounding fiscal policies and structural reforms in some euro area countries may have had a negative impact on consumer sentiment. Ensuring clarity about the content and timing of these reforms and a better understanding of their benefits to all citizens would make a very important contribution to supporting household confidence.","Turning to price developments, we expect some short-term volatility in HICP inflation rates to continue. According to Eurostat’s flash estimate, annual inflation in the HICP was 1.6% in March, unchanged from February and down from 1.9% in January. However, over the coming months, annual inflation rates could edge up again, on account of less favourable base effects and increases in indirect taxes.","Looking beyond these short-term fluctuations, we expect price developments to remain in line with price stability. Given the anticipated gradual pace of the economic recovery, wage developments should remain moderate. The latest data on wage growth in the fourth quarter of 2003 lend support to this view. Moreover, the past appreciation of the euro exchange rate will continue to alleviate import price pressures and dampen the inflationary impact of higher oil and commodity prices, which are also related to strong demand at the global level","Again, this outlook for price developments is in line with available forecasts and projections. Given their conditional nature, we will continue to monitor all indicators closely. In particular, the increase in commodity prices and the evolution of long-term inflation expectations deserve close attention.","Turning to the monetary analysis, annual M3 growth has been moderating since the summer of 2003, though only slowly. At the same time, the growth of loans to the private sector has been edging up. Both monetary and credit growth seem to be supported by the low level of interest rates prevailing in the euro area and may also reflect the improvement in the economic environment since the summer of 2003.","Given the strong M3 growth over the past few years, there is currently more liquidity in the euro area than is needed to finance non-inflationary growth. The effects of this high liquidity on inflation over the medium term will greatly depend on future developments in the economy and financial markets. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.","To conclude, the economic analysis continues to indicate that the outlook for price developments in the medium term is in line with price stability. Cross-checking with the monetary analysis does not alter this picture.","Let me also make a few remarks on other policies in the euro area. With regard to fiscal policies, the Governing Council sees continued reasons for concern. Recent information indicates that significant imbalances are emerging in a growing number of countries and that current policies would not be sufficient to attain the consolidation objectives specified in the latest stability programmes. We strongly urge governments to take corrective action in a timely and sustained fashion, where and when necessary.","Finally, with regard to structural reforms, the Governing Council welcomed the Presidency conclusions of last weekend’s Brussels European Council. Structural reforms are necessary to meet the Lisbon challenge and thus reap the benefits of higher sustainable growth and employment. As pointed out by the European Council, the pace of reform needs to be significantly stepped up and the critical issue now is the need for better implementation of commitments already made. Ending the political uncertainty and delays surrounding the implementation of sustainable fiscal policies and effective structural reforms would indeed support private sector confidence, which would add momentum to the economic recovery in the euro area, given the supportive stance of monetary policy.","We are now at your disposal for questions.","Ladies and gentlemen, it is a pleasure to welcome you to our press conference here in Helsinki, where the Governing Council of the European Central Bank met today for the ninth time outside Frankfurt. I would like to thank acting Governor Matti Louekoski for his invitation and very kind hospitality, as well as the staff of Suomen Pankki – Finlands Bank for a perfectly organised meeting. We deeply regret that Mr Matti Vanhala had to resign from his position and we wish him all the best.","Let me now report on the outcome of today’s meeting. On the basis of our regular economic and monetary analyses, we continue to expect that price stability will be maintained over the medium term. Accordingly, we did not change our assessment of the monetary policy stance and left the key ECB interest rates at their current low levels. The low interest rates across the entire maturity spectrum are also supporting the economic recovery in the euro area. As always, we will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.","Allow me to elaborate on our decision, turning first to the economic analysis. Regarding the current situation and the very short-term outlook, the conjunctural indicators available still provide mixed evidence. All in all, they suggest that the recovery of real economic activity in the euro area has continued into 2004, albeit at a modest pace. Most recent information has been more encouraging, with the latest euro area survey data offering more positive signals with regard to the beginning of the second quarter.","While the latest positive signals need to be confirmed by future developments, they underpin the expectation of the gradual recovery in the euro area continuing and strengthening over time. The conditions for such a recovery are in place.","First, global economic growth continues to be robust and world trade has strengthened. The global economic upturn is broadly based, both geographically and across sectors, and thus provides a favourable external environment for the euro area. In this context, we expect euro area exports to grow significantly this year and next. Second, favourable financing conditions, improvements in corporate efficiency and earnings and the strength of global demand should help investment. Growth in real disposable income should support private consumption, especially since households appear not to face financial constraints that might impede stronger spending. Over time, consumer spending should also be supported by an improvement in labour market conditions.","These considerations underpin our confidence in a continuation of the economic recovery, an expectation which is mirrored by available forecasts and projections. It is also in line with financial market developments over the past few weeks. Obviously, any forward-looking assessment is subject to risks and uncertainties. On the external side, the adverse terms-of-trade effects of recent rises in oil and other commodity prices pose risks at shorter horizons, while the persistence of global imbalances implies some uncertainties over the medium term. On the domestic side, uncertainties surrounding fiscal policy and structural reforms in some euro area countries seem to have contributed to preventing a more vigorous improvement in consumer confidence. A continued commitment to and greater clarity about the content and timing of these crucial reforms, supported by a better understanding of their necessity and benefits for all citizens, would help to resolve this uncertainty and thereby mitigate the associated risks for the euro area economy.","Turning to price developments, annual HICP inflation rates will exhibit some short-term volatility over the coming months, as we already indicated on the occasion of previous meetings of the Governing Council. According to Eurostat’s flash estimate, annual HICP inflation was 2.0% in April, after 1.7% in March. While no detailed information is available as yet, the recent rise in annual inflation rates is likely to mainly reflect a strong base effect in the energy component resulting from the marked decline of oil prices a year ago. Moreover, recent oil price increases have exerted additional upward pressure. As these factors will also play a role in the next few months, inflation rates of 2% or somewhat above are possible over the short term. Despite these recent, less positive developments, over longer horizons we expect inflation rates to remain in line with price stability. In particular, wage developments should remain moderate. The latest data on wage growth in the fourth quarter of 2003 lend support to this view.","Our outlook for price developments is in line with available forecasts and projections. However, at the current juncture, the increase in commodity prices in general, and oil prices in particular, may pose an upside risk to price stability. It will therefore remain important to pay close attention to inflation expectations.","Moving on to the monetary analysis, annual M3 growth has moderated only slowly since the summer of 2003. While there is evidence of continued portfolio shifts out of M3 into longer-term assets, the pace of this adjustment remains modest. Both monetary and credit growth continue to be supported by the historically low level of interest rates in the euro area and may also reflect the improvement in the economic environment over the last few quarters.","Given the continued strength of monetary growth, liquidity conditions remain ample in the euro area. The impact of this high level of liquidity on inflation over the medium term will depend on future developments in the economy and financial markets. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.","To sum up, the economic analysis indicates that the main scenario for the outlook for price developments over the medium term is in line with price stability. Cross-checking with the monetary analysis does not alter this view at the current juncture.","As usual, I also wish to make a few remarks regarding other policies in the euro area. With regard to fiscal policies, the Governing Council sees increased reasons for concern. On the basis of the latest Commission forecasts, the average euro area budgetary position is not expected to improve much this year or next. A growing number of countries are likely to report significant imbalances, while fiscal consolidation efforts might fall short of commitments. It is essential that all countries concerned undertake credible measures to address these concerns. Such measures should be part of a comprehensive reform strategy. This would underpin the ongoing economic upswing by boosting confidence in sound public finances and by improving the prospects for future economic growth. The Governing Council welcomes the decision by the Commission to request more consolidation efforts from a number of countries.","Turning to structural reforms, the Governing Council reaffirms its view that such reforms are essential if the euro area’s growth potential is to expand substantially. In particular, both our employment rate and our labour productivity growth need to increase significantly. Following our discussions here in Finland, let me stress that this requires a strengthened technological and scientific base and its application in the euro area as a whole, fostered by major efforts to enhance the human capital of our economy. In this context, we are particularly concerned that youth unemployment remains high in several countries. In order to achieve these goals, it is necessary to strengthen the implementation of structural reforms, both at the European and the national level. The Lisbon agenda provides an excellent diagnosis of the problem and we have a good understanding of the measures needed to deal with it. We strongly support the ongoing reforms, which should be speeded up across the euro area. It is important to understand that everyone will be better off – with higher growth and more jobs – if and when the reforms of the Lisbon agenda are delivered.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","However, I should first like to inform you about some decisions we have taken regarding the publication of staff macroeconomic projections.","As you are aware, twice a year Eurosystem staff, that is, staff of the ECB and the euro area national central banks, jointly produce a set of macroeconomic projections. These serve as one of the inputs into the deliberations of the Governing Council. Subsequently, the projections are published in the June and December issues of the Monthly Bulletin. As you also know, in the interim period, that is, for March and September, ECB staff produce what is basically an update of the Eurosystem staff projections. These projections also serve as input into the meetings of the Governing Council, but so far have not been published.","The positive experience and familiarity gained over the past few years with the publication of macroeconomic projections have given us the confidence to go a step further by also publishing the interim ECB staff projections. Therefore, in the spirit of transparency and accountability, the ECB staff projections will also be published from September 2004 onwards.","In all cases, that is, four times a year, the projections will be published in the appropriate form in the Monthly Bulletin. In addition, as a further step towards providing relevant information in a timely manner, we will from today onwards provide you with an advance copy of the Monthly Bulletin section covering the projections. This advance copy will be made available shortly after the end of this press conference, both in hard copy and on the ECB’s website. The same procedure will be applied in September and every three months thereafter.","The fact that we have decided to publish the interim ECB staff projections in future does not change their role as one of the inputs into our deliberations. The Governing Council continues to base its monetary policy decisions on a comprehensive economic analysis, which is cross-checked with the monetary analysis.","Let me now turn to today’s monetary policy discussion.","In summary, we noted that the economic recovery has strengthened over recent months. At the same time, we have also witnessed stronger inflationary pressures over the short term. Nevertheless, we are still of the view that the medium-term outlook remains in line with price stability. Accordingly, we left the key ECB interest rates unchanged. The low level of interest rates continues to support the economic recovery. We will remain vigilant with regard to all developments which could affect the risks to price stability over the medium term.","I shall now explain our assessment in more detail.","In the context of our economic analysis, the latest data releases confirm that the economic recovery in the euro area is under way. According to Eurostat, real GDP grew by 0.6% quarter on quarter in the first quarter of this year, and quarterly real GDP growth for the fourth quarter of last year was revised upwards from 0.3% to 0.4%. The more pronounced pace of real GDP growth mainly reflected both stronger private consumption and buoyant exports. Latest survey data still provide mixed signals with regard to the underlying strength of the recovery but remain fully consistent with ongoing growth in the current quarter.","Looking ahead, the conditions for a continuation of the recovery remain in place. Economic growth outside the euro area continues to be strong and should promote export growth. On the domestic side, investment should benefit from the positive global environment as well as from the favourable financing conditions. Improvements in corporate efficiency and higher profits are also supporting business investment. Moreover, private consumption should gradually recover from the stagnation witnessed during most of 2003, broadly in line with growth in real disposable income which, with the usual lag, should be further underpinned by an increase in employment growth later on.","Accordingly, we expect an ongoing recovery in euro area economic growth over the coming quarters, leading to a broader and stronger upswing in the course of next year. This is also reflected in the Eurosystem staff projections, which envisage euro area real GDP growth of between 1.4% and 2.0% on average in 2004, rising to between 1.7% and 2.7% in 2005. Available forecasts from international and private organisations convey a broadly similar picture.","With regard to this scenario, there are risks and uncertainties in both directions. On the one hand, the current rather robust pace of economic growth outside the euro area, the recent development in private consumption as well as some survey data imply a potential for stronger growth dynamics, particularly in the short term. On the other hand, high oil prices could pose a downside risk. Over a longer horizon, concerns also remain about the persistence of global imbalances.","Concerning prices, recent oil price developments have created considerable upward pressure on consumer prices. According to Eurostat’s flash estimate, annual HICP inflation was 2.5% in May, partly due to base effects, after standing at 2.0% in April. Markets expect oil prices to decline gradually from recent peaks. If they were to remain at their recent high levels, it is to be expected that inflation rates would continue to be higher than previously anticipated and stay above 2% for longer than just a few months ahead. When assessing price trends over the medium term, however, the outlook remains favourable. In particular, overall import price developments should remain moderate and inflationary pressure from wages and unit labour costs should be contained. Both factors should help to bring annual rates of consumer price inflation back to below 2% in 2005.","These views are in line with the Eurosystem staff projections, which put average annual HICP inflation at between 1.9% and 2.3% in 2004 and between 1.1% and 2.3% in 2005. They are also broadly consistent with recently released forecasts by international and private organisations. These forecasts and projections are subject to a number of risks and uncertainties. Concerns relate in particular to oil price developments. Moreover, there is insufficient knowledge today about future changes in indirect taxes and administered prices; information on these items typically becomes available only towards the end of the year. Against this background, the potential risk for second-round effects via wages needs to be monitored closely. Finally, there has been an increase in measures of long-term inflation expectations derived from financial market indicators. While these indicators should be interpreted with caution, the recent upward trend calls for particular vigilance.","Moving on to the monetary analysis, we have seen increasing evidence of a normalisation of the portfolio behaviour of private investors. As a consequence, annual M3 growth has fallen quite significantly over recent quarters. Still, the low level of interest rates continues to fuel monetary growth and the amount of excess liquidity remains high in the euro area. In an economic upswing, the persistence of excess liquidity could lead to inflationary pressures over the medium term.","To sum up, the economic analysis indicates that the main scenario for the outlook for price developments over the medium term remains in line with price stability. However, short-term pressures on inflation have increased recently and some upside risks need to be taken into account. Cross-checking with the monetary analysis also supports the case for vigilance with regard to the materialisation of risks to price stability.","Given the signs that the economic recovery will continue, it is particularly important that fiscal policies and structural reforms play their part in improving the economic fundamentals of the euro area. It is regretful that recent fiscal developments have not been helpful in this respect. A growing number of countries are reporting significant imbalances and fiscal consolidation efforts fall disappointingly short of commitments. In order to strengthen confidence in a sustainable upswing, it is now essential that clarity about the future course of consolidation of fiscal policies is re-established in all countries concerned. This requires credible measures with an emphasis on structural expenditure reform so that imbalances are redressed, tax/benefit systems become more growth-friendly and social security systems are put on a sound financial footing. These measures, together with a revived momentum towards effectively implementing structural reforms in labour and product markets, would provide very valuable support to the current economic upswing.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","On the basis of the regular economic and monetary analyses, we have confirmed our assessment of last month. While somewhat stronger inflationary pressure is likely to persist over the short term, the outlook still remains in line with price stability over the medium term. Therefore, the Governing Council decided to retain its monetary policy stance, leaving the key ECB interest rates unchanged. By historical standards, interest rates are low, both in nominal and in real terms, also lending support to economic activity. The Governing Council will remain vigilant with regard to all developments which could affect the risks to price stability over the medium term.","Let me now explain our assessment in more detail, turning first to the economic analysis.","Following quarterly real GDP growth of 0.6% in the first quarter of this year, the latest data releases confirm that the economic recovery in the euro area is continuing. All in all, the latest indicators of output and expenditure, as well as the most recent survey data, remain consistent with ongoing growth in real activity during the second quarter.","Looking ahead, we remain confident that the recovery of economic activity will continue. The conditions for a broadening and strengthening of the recovery are in place. On the external side, economic growth outside the euro area remains strong, which should promote euro area exports. On the domestic side, investment should benefit from the positive external environment and the favourable financing conditions within the euro area. As corporate restructuring gathers pace and business efficiency advances, the resulting improvements in profits should further underpin business investment. Moreover, the recovery of private consumption should proceed in line with increases in real disposable income and the anticipated subsequent strengthening of employment growth. Available forecasts from international and private organisations paint a broadly similar picture of the outlook for the euro area. The expectation of a continued economic recovery is also in line with recent developments in financial markets.","Of course, this scenario of an ongoing economic recovery may be influenced by a number of factors working in opposite directions. On the upside, euro area growth in the first quarter was stronger than anticipated and this momentum may strengthen shorter-term dynamics. Ongoing robust growth in the global economy could also lead to stronger than expected activity in the euro area. On the downside, despite having declined somewhat, oil prices remain at high levels and may, largely through their impact on the euro area’s terms of trade, dampen growth. Furthermore, over longer horizons, there are concerns relating to the persistence of global imbalances.","Turning to price developments, there is a need to distinguish between short-term developments and the medium-term trend when assessing risks to price stability. Over the short term, oil prices continue to exert upward pressure on the general price level. According to Eurostat’s flash estimate, annual HICP inflation was 2.4% in June, having stood at 2.5% in May. Although oil prices have fallen over the last weeks, markets expect them to remain high for some time. Were this to occur, inflation rates would most likely remain above 2% for longer than previously expected.","Looking beyond the short term, however, the outlook remains consistent with price stability, provided that wages develop moderately, in line with the latest evidence available. Nevertheless, there are some upside risks to price stability. The strength of global economic dynamism may continue to exert upward pressure on commodity prices, including oil prices. Moreover, following rather strong increases in the past, the further evolution of indirect taxes and administered prices is difficult to incorporate into any forward-looking assessment at this point in time, because such information usually becomes available only later in the year. Against this background, the potential risk of second-round effects via wage and pricing behaviour needs to be monitored closely. Social partners can make an important contribution to facilitating the maintenance of price stability by focusing on the medium-term outlook for price developments rather than on currently observed rates of inflation. This would also be conducive to fostering employment growth. Finally, measures of long-term inflation expectations derived from financial market indicators remain relatively high. While these indicators should be interpreted with caution, their development calls for particular vigilance.","Moving to the monetary analysis, the overall picture remains unchanged from our previous assessment. Annual M3 growth rates have fallen over recent months. While this decline partly reflects base effects, the portfolio decisions of firms and households are also returning to normal as financial uncertainties have receded. Indeed, there are signs that savings are increasingly being allocated to long-term assets outside M3 rather than to liquid monetary assets. However, despite the recent moderation of annual M3 growth, there remains substantially more liquidity in the euro area than is needed to finance non-inflationary growth. While a significant part of the excess liquidity has accumulated as a result of past portfolio shifts, low interest rates have also fuelled the build-up of liquid assets. The low level of interest rates also supports credit growth. The stock of excess liquidity, if it persists, may pose an upside risk to price stability over the medium term.","To sum up, the economic analysis indicates that the medium-term outlook for price developments remains in line with price stability, while ongoing close monitoring is necessary. Cross-checking with the monetary analysis supports this conclusion, including the case for continued vigilance with regard to the materialisation of upside risks to price stability.","The Governing Council also discussed a number of issues relating to economic policies in the euro area. First, as regards fiscal policies, it is now of the highest priority that all countries concerned re-establish their commitment to consolidation in order to avoid past mistakes of unbalanced policies in a recovery period. Indeed, the recovery offers the opportunity to put public finances on a sounder track. This requires a strict control of expenditure in the implementation of this year’s budget and a comprehensive reform strategy as a basis for next year’s fiscal planning. Credible expenditure-based reforms are needed to sustain budgetary consolidation and promote the soundness of social security systems, thereby strengthening confidence in the short term and economic growth prospects in the medium term.","Maintaining the existing institutional framework and implementing it consistently is essential to safeguard the soundness of public finances and the macroeconomic environment. In the view of the Governing Council, the Stability and Growth Pact should not be changed, even though its implementation within the current framework could be improved further.","A second issue we have discussed in depth over recent weeks has been the need to clearly step up the pace of structural reforms in the labour and product markets. In this connection, the Governing Council expressed concern about growth in euro area labour productivity having been on a downward trend since the mid-1990s. While this partly reflects improvements in employment, it is also the consequence of sub-optimal progress in fostering overall economic efficiency. Reaping the benefits of the technological advances and efficiency gains associated with producing and using new information and communication technologies requires, in particular, the removal of structural rigidities. In this respect, stimulating further product market competition, particularly in the services sectors, and facilitating industrial restructuring could speed up innovation and the adoption of the new technologies. At the same time, strengthening and spreading technological advances across the individual sectors of the euro area economy must go hand in hand with increased efforts to enhance human capital and adjust educational systems to the changing needs of the labour market.","Since the mid-1990s, somewhat stronger average employment growth has partly compensated for the negative impact of lower productivity gains on overall output growth. However, despite past improvements in employment, the labour supply and its utilisation in the euro area remain low on international comparison. A relatively smaller proportion of the working-age population participates in the labour market, a higher proportion of those participating is unemployed and those who are employed work, on average, far fewer hours per year than elsewhere. Hence, there is a need for further policy changes in the euro area that underpin the labour supply and its utilisation and thereby raise the medium-term growth prospects, so as to preserve average living standards in the face of an ageing population.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by the President of the ECOFIN Council, Mr Zalm, and Commissioner Almunia.","We noted that the information which has become available in recent months indicates that the economic recovery in the euro area has maintained its momentum and should remain firm in the coming quarters. We have also witnessed somewhat higher inflation rates, mainly due to developments in oil prices. At present, our judgement is that although some upside risks to price stability exist, the overall prospects remain in line with price stability over the medium term. Accordingly, we have retained our monetary policy stance and left the key ECB interest rates unchanged. The level of interest rates is very low by historical standards, both in nominal and in real terms, lending support to economic activity. We will remain vigilant with regard to all developments which could imply risks to price stability over the medium term.","I shall now explain our assessment in more detail, turning first to the economic analysis.","The latest data releases confirm that the economic recovery in the euro area is continuing. According to Eurostat’s flash estimate, real GDP grew by 0.5% quarter on quarter in the second quarter of this year, having recorded a 0.6% increase in the first quarter. These growth rates are the strongest in the euro area for some time. The latest indicators of output and demand remain consistent with ongoing growth in real activity, increasingly supported by domestic demand, also in the third quarter of 2004.","Looking ahead, the conditions for a continuation of the recovery remain in place. Economic growth outside the euro area continues to be robust overall, even if subject to temporary fluctuations, and should continue to support euro area export growth. On the domestic side, investment should benefit from the positive global environment and the very favourable financing conditions. Improvements in corporate efficiency and higher profits are also supporting business investment. Moreover, private consumption should continue its gradual recovery, broadly in line with growth in real disposable income which, with the usual lag, should be further underpinned by an increase in employment growth later on.","Against this background, we expect the economic recovery in the euro area to continue and to become more broadly based over the coming quarters, leading to a somewhat stronger upswing in the course of 2005. This is also reflected in the ECB staff projections, which will be published today. They envisage euro area real GDP growth of between 1.6% and 2.2% on average in 2004, rising to between 1.8% and 2.8% in 2005. These growth rates are close to estimates for long-run potential growth and, for both years, they are slightly higher than was expected in the June Eurosystem staff projections. Available forecasts from international organisations and other sources convey a broadly similar picture.","Overall, the risks to these projections seem to be broadly balanced. On the upside, the ongoing momentum of the recovery may again imply more positive developments for economic growth in the coming quarters. On the downside, there are still concerns about continuing economic imbalances in other parts of the world. These imbalances could affect the sustainability of the economic recovery.","Another downside risk to the growth projections relates to oil prices. If these were to remain higher than currently expected by markets, this could dampen both foreign and domestic demand. In assessing these risks, however, it should be taken into account that, when expressed in euro, the recent rise in oil prices has been significantly smaller than in previous episodes when oil price increases had a major impact on the world economy. In addition, in real terms, oil prices are significantly below the peaks they have reached in the past. Moreover, when compared with the 1970s and 1980s, the oil intensity of production in the euro area and elsewhere has fallen significantly. Finally, it should be kept in mind that, in contrast to previous periods of oil price turmoil, this year’s rise in oil prices is not only due to supply-side factors, but is also driven by the strong global expansion. All these factors put the downside risks to economic activity coming from oil prices into perspective.","However, recent oil price developments have had a visible direct impact on price developments in the euro area. Eurostat’s flash estimate for annual HICP inflation in August was 2.3%, unchanged from July On the basis of current market expectations for oil prices, it appears unlikely that annual inflation rates will return to levels below 2% in the remainder of this year.","Looking ahead, however, there are no indications at present of stronger underlying inflationary pressures building up domestically. Recent wage developments have been moderate, and this trend is expected to continue for some time to come in view of the continued high level of unemployment in the euro area. If this is the case, and provided that one-off shocks to prices from other sources such as those seen in 2004 are not repeated, annual inflation rates should drop below 2% in 2005.","Against this background the ECB staff projections put average annual HICP inflation at between 2.1% and 2.3% for 2004 and between 1.3% and 2.3% for 2005. The lower end of these ranges is slightly higher than what was projected in June for both 2004 and 2005. The ECB staff projections for inflation are broadly consistent with other recently released forecasts.","However, several upward risks to the projections for inflation exist. Concerns relate in particular to oil price developments, which may continue to have a visible impact on inflation. Oil price rises also imply the risk of second-round effects emerging in wage and price-setting, a risk which intensifies when the economic upswing strengthens. A further upward risk relates to the future evolution of indirect taxes and administered prices. Indeed, upside risks to inflation are also reflected in the continued elevated levels of measures of long-term inflation expectations derived from financial market indicators. While these indicators should always be interpreted with caution, their current level calls for particular vigilance.","Turning to the monetary analysis, the annual rate of M3 growth has moderated significantly since the summer of 2003. This moderation largely represents a normalisation of portfolio allocation behaviour following the easing of the exceptional economic and financial uncertainty which prevailed between 2001 and early 2003.","Nonetheless, M3 growth remains resilient. It appears that the reversal of past portfolio shifts is proceeding more slowly than would have been expected on the basis of historical regularities. This may reflect an increased risk aversion of households and firms, given the stock market losses they experienced between 2000 and the spring of 2003. In addition, the low level of interest rates continues to support monetary expansion, especially of the most liquid assets included in the narrow aggregate M1.","The low level of interest rates also seems to be fuelling the growth of loans to the private sector, which has risen to a relatively robust rate over recent months. In this respect, the growth rate of mortgage loans to households is rather high and is associated with fairly dynamic housing market developments and real estate prices in several euro area countries.","There remains substantially more liquidity in the euro area than is needed to finance non-inflationary growth. At present, it is not clear how this excess liquidity will be used in the future. If significant parts of these liquid holdings were to be transformed into transaction balances, particularly at a time when confidence and economic activity were strengthening, inflationary risks would rise. In addition, high excess liquidity and strong credit growth could become a source for strong asset price increases.","To sum up, while the economic analysis indicates that prospects are consistent with price stability being maintained over the medium term, a number of upside risks need to be carefully monitored. Cross-checking with the monetary analysis also supports the case for strong vigilance with regard to the materialisation of risks to price stability.","As regards fiscal policy, first data for 2004 indicate that most euro area countries are likely to miss the original budgetary targets set in their updated stability programmes. In some cases, countries seem to have based their programmes on overly optimistic assumptions for economic developments. In addition, some countries have been implementing fewer consolidation measures than originally planned. As a consequence, the aggregate fiscal balance for the euro area is not likely to improve in 2004. Progress in fiscal consolidation needs to be prioritised and should be part of a comprehensive and growth-friendly reform agenda.","The Governing Council remains convinced that there was and there is no need for changes to the text of the Treaty and of the Stability and Growth Pact. The Pact is an appropriate framework for dealing with countries’ fiscal developments on a level playing-field. At the same time, we consider that improvements could be introduced in the implementation of the Pact.","In line with the Broad Economic Policy Guidelines, macroeconomic policies need to be oriented towards growth and stability in the euro area. This also requires sustained efforts to increase the flexibility of labour and product markets in the euro area. In this respect, several governments in the euro area have taken courageous steps over recent months. It is important that the reform momentum is maintained, taking advantage of the economic recovery. This will not only increase overall economic efficiency and enhance longer-term growth prospects in the euro area, but will also strengthen the basis for a sustained economic upswing in the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Brussels. Today’s meeting is the tenth time that the Governing Council has met outside Frankfurt, and I would like to thank Governor Quaden for his invitation. Let me also express our gratitude to the staff of the Nationale Bank van België/Banque Nationale de Belgique for their kind hospitality and perfect organisation of today’s meeting.","Let me now report on the outcome of today’s meeting. As regards economic growth, while some uncertainty has recently arisen concerning the expected strengthening of activity, the economic recovery in the euro area is ongoing. Looking at price developments, high oil prices have had a visible direct impact on inflation rates this year. However, the risk of second-round effects still seems to be contained, and the overall outlook remains consistent with price stability over the medium term. Accordingly, we have left the key ECB interest rates unchanged. This means that the level of interest rates continues to be very low by historical standards, in both nominal and real terms. Strong vigilance is warranted with regard to all developments which could imply risks to price stability over the medium term.","I shall now explain our assessment in more detail, turning first to the economic analysis.","The information available to date indicates that the economic recovery in the euro area is continuing. In particular, survey indicators up to September point to ongoing growth in industrial production and the services sector. Moreover, the gradual recovery in consumer confidence is proceeding, and there are some tentative signs of an improvement in the prospects for employment, although available indicators for household spending do not yet point to an immediate strengthening of consumption growth.","All in all, the growth momentum seen in the euro area in the first half of 2004 should be broadly maintained in the coming quarters, in line with available forecasts from international organisations. On the external side, euro area exports should continue to benefit from favourable global demand conditions, not least from trade with the new EU Member States, where import demand has been strengthening. On the domestic side, investment should benefit from the positive global environment and the very favourable financing conditions in the euro area. As companies restructure, improvements in corporate efficiency and higher profits are also supporting business investment. Moreover, there is scope for a recovery in euro area private consumption, in line with growth in real disposable income.","Any central scenario for future developments is surrounded by a good deal of uncertainty, which at present is particularly related to oil prices. If oil prices were to remain high, or even increase further, it could dampen the strength of the recovery, both inside and outside the euro area, even though the oil intensity of production has fallen significantly since the 1970s and 1980s. All in all, while the burden resulting from higher oil prices cannot be avoided, its medium-term impact should be of a more limited magnitude than in the past. Obviously, for this outcome to materialise, all parties concerned must live up to their responsibilities.","Turning to consumer prices, the oil market developments have had a direct impact on the euro area HICP. Following an annual rate of inflation of 1.7% in the first quarter of 2004, inflation reached 2.3% in the second quarter and remained at that level in July and August. According to Eurostat’s flash estimate, annual HICP inflation seems to have fallen slightly in September, to 2.2%. Higher energy prices may have been more than compensated by lower food prices, partly due to base effects resulting from last year’s strong increases in this sub-category. Still, on the basis of current market expectations for oil prices, it appears unlikely that annual inflation rates will return to levels below 2% in the remainder of this year.","Nevertheless, looking further ahead, the available information does not indicate that stronger underlying inflationary pressures are building up domestically. Recent wage developments have remained moderate, and this trend should continue. On the basis of this assumption, and provided that there are no further significant shocks to prices, annual inflation rates should drop below 2% in 2005.","Several upward risks to the outlook for price stability continue to exist. Concerns again relate to oil price developments, in particular to the extent that second-round effects stemming from wage and price-setting behaviour materialise. It is therefore of the utmost importance to avoid inappropriate reactions, as observed in past episodes of strong oil price increases. A further upward risk relates to the future development of indirect taxes and administered prices. These upside risks call for ongoing vigilance, which is a necessary condition for keeping medium to long-term inflation expectations in line with our definition of price stability.","As regards the monetary analysis, M3 growth remains resilient. The downward trend in annual M3 growth from mid-2003 appears to have halted over the summer months, and the shorter-term dynamics of M3 have strengthened. This reflects the fact that the historically low level of interest rates in the euro area continues to support monetary expansion, especially of the most liquid assets included in the narrow aggregate M1.","The low level of interest rates also fuels the growth of MFI credit. The annual growth rate of loans to the private sector remains robust, largely driven by the dynamism of mortgage loans. These are also supported by strong house price increases in several euro area countries.","There remains substantially more liquidity in the euro area than is needed to finance non-inflationary growth. At present, it is not clear how this excess liquidity, which is mainly the result of past portfolio shifts, will be used in the future. If significant parts of these liquid holdings were to be transformed into transaction balances, particularly at a time when confidence and economic activity were strengthening, inflationary risks would rise. In addition, high excess liquidity and strong credit growth could become a source of substantial asset price increases.","To sum up, annual inflation rates should fall below 2% in 2005, but a number of medium-term upside risks to price stability need to be carefully monitored. Cross-checking with the monetary analysis also supports the case for strong vigilance with regard to the materialisation of risks to price stability.","Let me also address the current evidence on fiscal developments, where the latest budgetary notifications are a source of concern. While some countries will maintain a sound budgetary position, a significant number of euro area countries are expected to record deficits near to or above 3%. The aggregate euro area fiscal deficit-to-GDP ratio is expected to increase somewhat, as is the debt-to-GDP ratio. In the coming years, important challenges for the consolidation of public finances will have to be faced. Member States need to renew their consolidation efforts and should not rely on one-off measures, so as to comply with their commitments under the Stability and Growth Pact and to foster confidence. They must also set the right priorities in public finances, towards structural reform, innovation and competitiveness. This would very much support the Lisbon agenda and thereby promote economic growth, foster job creation and reduce unemployment.","Concerning the European fiscal framework, the Governing Council is convinced that substantial improvements in the implementation of the Stability and Growth Pact are possible and would be beneficial, while we would warn against a change to the text of the Treaty or the Regulations which form the basis of the Pact. We consider the Pact as key to ensuring macroeconomic stability on a sustainable basis. It is a framework which is necessary to preserve sound fiscal policies in the euro area, for which strict surveillance and effective peer pressure on national budget policies are indispensable.","It is of vital importance to the credibility of the budgetary surveillance that the reliable compilation and timely reporting of government finance statistics is ensured. The European accounting rules must be fully respected when recording all types of expenditure and revenue. This should be done in a manner that is consistent and stable over time and homogeneous across countries. The procedures must not be vulnerable to political and electoral cycles, as stated by the ECOFIN Council. Countries should consider the quality and integrity of their statistics as a priority matter.","Finally, let me report on the detailed discussion we had today on employment and unemployment developments in the euro area. Two observations stand out when we look at the period of relatively slow real GDP expansion since early 2001. First, after an initial rise, the euro area unemployment rate has remained broadly unchanged since early 2003. And second, there seems to have been a relatively limited negative impact on employment growth over the past few years. The following factors might help to explain this pattern. While the period of slow growth has been relatively long from a historical perspective, the cyclical amplitudes have been smaller and have not therefore triggered very sharp reactions of employment and unemployment. In addition, wage developments have been more favourable than in previous episodes, and firms may have – to a greater extent than previously – adjusted labour input downwards in term of hours, rather than in terms of employees. This in turn might indicate that firms have gained an element of flexibility to adjust costs.","Looking forward, from a cyclical point of view, employment should recover and unemployment could start falling in the course of next year if overall demand develops as expected. This should support economic growth through an increase in labour income and a positive impact on consumer confidence, and thus on consumption. However, structural problems remain large. This is highlighted, for example, by the fact that over 40% of all unemployed people in the euro area have been without a job for more than a year. In order to decisively overcome the obstacles towards more employment growth and to reduce the trend or structural level of unemployment, further comprehensive labour market reforms are of the essence.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","Persistently high and rising oil prices have had a visible direct impact on consumer prices this year, and inflation is likely to remain significantly above 2% in the coming months. This is a worrisome development, but there is no strong indication as yet that medium-term inflationary pressures are building up in the euro area. In particular, wage growth appears to remain limited, in the context of ongoing moderate real GDP growth and weak labour markets. Against this background, we have decided to leave the key ECB interest rates unchanged at their present levels, which are very low by historical standards. However, there are upside risks to price stability over the medium term. Strong vigilance is therefore warranted with regard to all developments which could increase such risks.","I shall now explain our assessment in more detail, turning first to the economic analysis. The economic recovery started in the second half of 2003, and we saw positive developments in the first half of 2004. Although short-term indicators have become more mixed, the basic determinants of economic activity remain consistent with continuing economic growth in 2005. On the external side, we see some moderation taking place following a period in which the world economy has experienced its strongest dynamism in many years. Nevertheless, euro area exports should continue to benefit from positive global demand conditions in 2005. On the domestic side, investment should be supported by the global environment, the very favourable financing conditions in the euro area, improved earnings and greater corporate efficiency gained through business restructuring. Furthermore, scope exists in the euro area as a whole for private consumption to strengthen, particularly once labour market prospects improve more visibly.","However, this outlook is surrounded by continuing uncertainty, in particular stemming from recent developments in oil markets. On the one hand, the magnitude and nature of this shock differ from earlier experiences, when oil price rises were much stronger and mainly due to supply constraints. In addition, the oil intensity of production is significantly lower in the euro area. On the other hand, recent oil price increases constitute a nonetheless sizeable adverse shock to the euro area economy. If oil prices were to remain at current levels, or even increase further, they would dampen the strength of the recovery both inside and outside the euro area. Under certain conditions, a smoother absorption of the oil price shock can be ensured: in particular, second-round effects in wage and price-setting must continue to be avoided, and fiscal authorities should refrain from taking measures which would prolong the necessary adjustment process.","With regard to consumer prices, annual inflation increased to 2.5% in October, according to Eurostat’s flash estimate. This was a strong increase, after the decline to 2.1% in September from 2.3% in August, and shows that oil price developments have had a sizeable direct impact on the euro area HICP in recent weeks. Moreover, the oil price shock may feed through the economy and generate further indirect effects, as indicated by developments in producer prices.","Looking further ahead, however, the information available so far does not suggest that stronger underlying inflationary pressures are building up in the euro area. Wage increases have remained limited since the last quarter of 2003, and this trend is expected to persist in the context of ongoing moderate growth and weak labour markets.","Nevertheless, a number of upward risks to the outlook for price stability have emerged over recent months. Risks are mainly associated with oil price developments, possible renewed increases in indirect taxes and administrative prices, and potential second-round effects stemming from wage and price-setting behaviour.","Further indications for the medium-term outlook are provided by the monetary analysis. The downward trend in annual M3 growth in the first half of this year appears to have come to a halt in recent months. The shorter-term dynamics of M3 have strengthened and its annual growth rates are rising. These developments reflect the stimulative effect of the historically low level of interest rates in the euro area on monetary expansion. Demand for the most liquid components of M3 contained in the narrow aggregate M1 is particularly strong. The low level of interest rates is also fuelling private sector demand for credit. In particular, the growth rate of loans for house purchase continues to rise and is now approaching double digits. Yet loan demand is becoming more broadly based, and the annual growth of loans to non-financial corporations is also picking up.","Given the continued strength of M3 growth over the past few years, there remains substantially more liquidity in the euro area than is needed to finance non-inflationary growth. This could pose inflationary risks in the future if the excess liquidity is not progressively reduced as a result of reverse portfolio shifts. Moreover, persistently high excess liquidity and strong credit growth could become a source of unsustainable asset price increases, particularly in property markets.","To sum up, the economic analysis suggests that underlying inflationary pressures are still contained, but a number of medium-term upside risks to price stability need to be monitored closely. It is particularly important that these do not affect long-term inflation expectations. Cross-checking with the monetary analysis continues to support the case for strong vigilance with regard to the materialisation of risks to price stability.","I would now like to make a few remarks on fiscal policies. Most countries have presented their budget plans for 2005. In some cases there are encouraging signs that Member States are planning to correct excessive deficits or make progress towards close-to-balance or in-surplus budgetary positions. However, there are other cases where there are significant risks that commitments under the Stability and Growth Pact will not be met, or where imbalances are on the rise and new breaches of the 3% reference value might occur. It is therefore imperative that 2005 budgets prioritise consolidation where this is necessary. Moreover, it is of vital importance that the reliable compilation and timely reporting of government finance statistics are ensured. Appropriate budgetary targets and compliance with fiscal commitments and reporting requirements will help to build confidence, support the economic upswing and prepare for the impact of population ageing.","As regards the European fiscal framework, the Governing Council remains convinced that improvements in the implementation of the Stability and Growth Pact are possible and would be beneficial. In this regard, the European Commission’s proposals for improving the implementation of the preventive arm of the Pact are useful. At the same time, the Governing Council warns against changes to the Pact and, in particular, the excessive deficit procedure. It considers the credibility of the 3% deficit limit essential to anchoring expectations of fiscal discipline. Moreover, strict surveillance and effective peer pressure on national budget policies are indispensable to preserving sound fiscal policies.","Finally, I would also like to take this opportunity to reiterate the need for progress on structural reform. Fiscal consolidation plans should be part of a structural reform agenda that favours growth, competitiveness and employment. As regards labour and product markets, the mid-term review of the Lisbon agenda – now being prepared for the European Council meeting in March 2005 – is a major opportunity to increase momentum in these fields. Structural reforms are crucial to a better performing EU economy, i.e. an economy with higher potential growth, more employment opportunities and greater resilience to shocks. Efforts to accelerate key economic reforms are now more important than ever.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","All in all, the short-term outlook for inflation remains worrisome, but our assessment of price developments over the medium term is unchanged. At the current juncture oil price developments are having a sizeable impact on consumer prices in the euro area, while there is no significant evidence that stronger underlying domestic inflationary pressures are building up. Accordingly, we have left the key ECB interest rates unchanged at their historically low levels. At the same time, we recognise the existence of upside risks to price stability over the medium term. Continued vigilance is of the essence with regard to those risks.","I shall now explain our assessment in more detail, turning first to the economic analysis. After the positive developments in the first half of 2004, economic growth has moderated in the second half. In the third quarter of the year, real GDP growth is estimated to have been only 0.3% quarter on quarter, after 0.7% and 0.5% in the previous two quarters. According to Eurostat, the contribution of net exports turned negative, reflecting in particular high import growth, and private consumption was subdued, probably dampened by higher oil prices. At the same time, investment growth increased and inventories were built up. The available survey information for October and November points to ongoing growth in the fourth quarter, albeit at a more moderate pace than in the first half of this year.","The conditions remain in place for economic growth to proceed. On the external side, while global growth is showing some signs of moderation, it nonetheless is expected to remain robust. Euro area exports should continue to benefit from global demand conditions. On the domestic side, investment should be supported further by the very favourable financing conditions in the euro area, improved earnings and greater corporate efficiency gained through business restructuring. Finally, scope exists for private consumption to strengthen, particularly if uncertainties surrounding the extent and pace of fiscal consolidation and structural reforms are reduced.","Accordingly, we expect a gradual recovery in euro area activity over the next two years, with somewhat more moderate growth rates due to the impact of oil prices. This is also reflected in the Eurosystem staff projections. Euro area real GDP growth is projected to be between 1.6% and 2.0% on average in 2004, between 1.4% and 2.4% in 2005 and between 1.7% and 2.7% in 2006. Available forecasts from international and private sector organisations convey a broadly similar picture.","Downside risks to these projections stem in particular from potentially unfavourable developments in the oil market. In order to limit such risks, second-round effects in wage and price-setting must be avoided and fiscal authorities should refrain from taking measures which would prolong or distort the necessary adjustment process. Moreover, the degree of competition in the euro area energy sector is an important factor in allowing higher oil prices to be absorbed without significant distortions. Further progress in increasing competition in this sector would be highly beneficial.","Turning to consumer prices, annual HICP inflation was 2.2% in November, according to Eurostat’s flash estimate, down from 2.4% in October. Over the coming months, inflation rates of above 2% are likely to persist, and some temporary further increase from current levels cannot be excluded. Looking further ahead, however, the information available so far indicates that HICP inflation would fall below 2% in the course of 2005 if no further adverse shocks occurred and it does not suggest that stronger underlying inflationary pressures are building up in the euro area. Wage increases have remained contained over recent quarters and, in the context of ongoing moderate growth and weak labour markets, this trend should continue in the future. Producer prices are rising, but this remains concentrated on energy and intermediate goods, which should limit the pass-through.","These views are also embodied in the Eurosystem staff projections. Average annual HICP inflation is projected to lie between 2.1% and 2.3% in 2004. As the impact of recent oil price increases and the effects of previous indirect tax and administered price rises gradually dissipate, annual HICP inflation is projected to be between 1.5% and 2.5% in 2005 and 1.0% and 2.2% in 2006. These projections are broadly consistent with forecasts recently released by international and private sector organisations.","Several upside risks need to be taken into account. Concerns relate in particular to future oil price developments and, more generally, to the potential risk of second-round effects in wage and price-setting throughout the economy. Further developments in indirect taxes and administered prices also need to be monitored closely.","Further insight into the outlook for price developments, at medium to longer-term horizons, is provided by the monetary analysis. The latest monetary data confirm that the downward trend in annual M3 growth observed from the middle of 2003 has not continued in recent months and has even reversed.","Over the course of 2004, monetary dynamics have been driven by two opposing forces. On the one hand, the historically very low level of interest rates in the euro area has stimulated M3 dynamics, in particular demand for the most liquid components of M3 contained in the narrow aggregate M1. On the other hand, portfolio allocation behaviour has tended to normalise over the past year following the exceptionally strong preference for liquidity observed during the period of heightened economic and financial uncertainty between 2001 and mid-2003. However, investors’ preference for liquid assets seems to have remained greater than would typically be expected at the current stage of the economic cycle, possibly due to the fact that the economic and financial uncertainties in recent years have been relatively strong and protracted.","The very low level of interest rates is also fuelling private sector demand for credit. In particular, the demand for loans for house purchase has continued to be robust, supported also by strong house price dynamics in several euro area countries. Growth in loans to non-financial corporations has picked up further in recent months.","As a result of the persistently high growth in M3 over the past few years, there remains substantially more liquidity in the euro area than is needed to finance non-inflationary economic growth. This could pose risks to price stability over the medium term.","To sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained, but a number of medium-term upside risks to price stability need to be monitored closely. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term. It is of the essence to avoid any spillover from short-term consumer price developments to long-term inflation expectations.","As regards fiscal policies, forthcoming budgets and stability programmes should send strong and confidence-building signals, namely that sound public finances and growth-friendly structural adjustments in public finances are being pursued. Concerning the European institutional framework, the Stability and Growth Pact and the excessive deficit procedure are the key fiscal cornerstones of EMU. These must remain firm. The Pact and the excessive deficit procedure should be fully respected in their current form, while their implementation could be improved, in particular as regards the preventive arm of the Pact.","Finally, let me support the calls expressed in the report of the High Level Group chaired by Wim Kok to renew the impetus in the Lisbon process and to sharpen its focus. In this context, we restate our strong support for all efforts on the part of governments, parliaments and social partners implementing the reform agenda and focusing on those reforms that will support employment growth, foster investment and stimulate innovation and productivity. Progress in this direction will not only enhance the underlying growth potential of the euro area economy over the medium term but will also help to bolster consumer and business confidence over a shorter horizon.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I would like to welcome you to the first press conference of 2005 and extend our best wishes to you for the new year. Let me also take this opportunity to say that all our thoughts are with the victims of the recent flood disaster and with their families in the countries concerned and around the world.","I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Mr Juncker, in his joint capacity as President of the ECOFIN Council and of the Eurogroup, and Mr Barroso, President of the European Commission. Commissioner Almunia was also invited to attend.","While short-term inflationary pressures persist, they have recently diminished somewhat, mainly due to the decline in oil prices from the peaks seen in October. At the same time, there is currently no significant evidence that underlying domestic inflationary pressures are building up in the euro area. Accordingly, we have left the key ECB interest rates unchanged at their historically low levels. However, upside risks to price stability over the medium term remain, and continued vigilance is of the essence with regard to those risks.","I shall now explain our assessment in more detail, turning first to the economic analysis. Eurostat yesterday released a new estimate for real GDP growth in the third quarter. At 0.3% quarter on quarter, it confirmed the previous estimate. While information on the fourth quarter is still incomplete, the latest macroeconomic data and survey evidence, although mixed, appear to suggest ongoing moderate growth.","Looking ahead, the conditions remain in place for economic growth to proceed. On the external side, global growth is expected to remain robust. The strength of global demand should help to sustain euro area exports. On the domestic side, investment should be supported by the very favourable financing conditions in the euro area, improved corporate earnings and greater business efficiency as firms continue to restructure. Moreover, private consumption is likely to evolve in line with the development of real disposable income. Consumption would also be supported if uncertainties surrounding the extent and pace of fiscal consolidation and structural reform in the euro area were reduced.","Downside risks to the economic outlook stemming from oil price developments have diminished somewhat over recent weeks. As regards exchange rates, we confirm our position, expressed when the euro rose sharply, that such moves are unwelcome and undesirable for economic growth.","Turning to prices, annual HICP inflation was 2.3% in December according to Eurostat’s flash estimate, up from 2.2% in November. Annual HICP inflation rates of above 2% are likely to persist over the coming months, notwithstanding the recent oil price decline. Looking further ahead, however, the available information indicates that, barring further adverse shocks, HICP inflation will fall below 2% in the course of 2005. Moreover, the latest indicators do not suggest that underlying domestic inflationary pressures are building up in the euro area. Wage increases remain contained, against the background of ongoing moderate economic growth and weak labour markets.","In the context of what is a broadly favourable outlook for price developments over the medium term, upside risks to price stability need to be taken into account. Given past oil price rises, there is a continued need to avoid second-round effects in wage and price-setting throughout the economy. Responsibility on the part of social partners remains very important. Moreover, developments in indirect taxes and administered prices require close monitoring.","Turning to the monetary analysis, the latest data confirm our previous assessment. Monetary and credit growth strengthened in the second half of 2004, largely as a consequence of the prevailing low level of interest rates. Given the strength of monetary dynamics over the past few years, there remains significantly more liquidity in the euro area than is required to finance non-inflationary growth. Overall, the monetary analysis points to upside risks to price stability over the medium to longer term. At the same time, the combination of high excess liquidity and strong credit growth could in some countries become a source of unsustainable price increases in property markets.","To sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained but upside risks to price stability over the medium term need to be monitored closely. In this context, it is crucial that there is no spillover from current short-term developments in consumer price inflation to long-term inflation expectations. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.","With regard to both fiscal policies and structural reforms, the governments and institutions of the European Union will have to confront many important challenges in the course of 2005.","Foremost among these challenges is the need to strengthen public finances by correcting excessive deficits swiftly and returning to a path of vigorous fiscal consolidation. Moreover, throughout the European Union there is a need to address the considerable challenges that population ageing poses to existing pension and social security systems.","There is also a need to now bring the ongoing discussions surrounding the European fiscal framework to a convincing conclusion which builds trust and confidence. The existing fiscal framework enshrined in the Treaty and the Stability and Growth Pact is a cornerstone of Economic and Monetary Union and thus of central importance for anchoring expectations of fiscal discipline. The Governing Council is convinced that improvements in the implementation of the Pact are possible. At the same time, it reiterates its position that it would be counterproductive to change the Regulations, dilute the 3% deficit limit or weaken the excessive deficit procedure.","Turning to structural policies, the forthcoming mid-term review of the Lisbon agenda provides an opportunity to give renewed impetus to structural reform in the euro area, as called for by the recently published Kok Report. We strongly support a reform agenda which focuses on raising employment growth, fostering investment and stimulating innovation and productivity. Progress in this direction will not only enhance the underlying growth potential of the euro area economy over the medium term, but will also help to bolster consumer and business confidence over a shorter horizon.","We are now at your disposal for questions.","Ladies and gentlemen, it is our pleasure to welcome you to this press conference. The Vice-President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB.","All in all, the information which has become available since the last meeting of the Governing Council means that our assessment of price stability over the medium term is unchanged. While short-term HICP inflation rates remain subject to certain volatilities, particularly in relation to oil prices, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area. Accordingly, we have left the key ECB interest rates unchanged at their historically low levels. However, upside risks to price stability over the medium term remain. Continued vigilance is therefore of the essence with regard to those risks.","I shall now explain our assessment in more detail.","Turning first to the economic analysis, recent data on economic activity, as well as survey information, suggest ongoing moderate growth in the fourth quarter of 2004 and a broadly unchanged situation around the new year. Looking ahead, the conditions remain in place for economic growth to pick up and become more self-sustained in the course of the year. Global growth remains solid, providing a favourable environment for euro area exports. On the domestic side, investment is expected to continue to benefit from very favourable financing conditions, improved earnings and greater business efficiency. Moreover, consumption growth should develop in line with real disposable income growth.","High and volatile oil prices and persistent global imbalances pose downside risks to growth. On the domestic side, reducing uncertainties associated with the extent and pace of fiscal and structural reforms would support consumption, as such uncertainties seem to be limiting private sector expectations of future real disposable income growth. As regards exchange rates, we confirm our position, expressed when the euro rose sharply, that such moves are unwelcome and undesirable for economic growth.","Turning to consumer prices, annual HICP inflation stood at 2.4% in December, up from 2.2% in November. Data for January are not yet available, but there are indications of a decline from December’s inflation rate. Over the coming months, volatility in annual inflation rates is likely to persist, reflecting in particular oil price developments. Looking further ahead, on the basis of the information available so far, HICP inflation is expected to fall below 2% in the course of 2005, provided no further adverse shocks occur. At the current juncture, the evidence does not suggest that stronger underlying domestic inflationary pressures are building up in the euro area. Wage increases have remained contained over recent quarters and, in the context of ongoing moderate economic growth and weak labour markets, this trend should continue in the future.","However, several upside risks to price stability need to be taken into account. Concerns relate in particular to future oil price developments and, more generally, to the potential risk of second-round effects in wage and price-setting throughout the economy. In addition, developments in indirect taxes and administered prices need to be monitored closely.","Further insight into the outlook for price developments at medium to longer-term horizons is provided by the monetary analysis. The latest monetary data confirm the strengthening of M3 growth observed since mid-2004. This increasingly reflects the stimulative effect of the historically very low level of interest rates in the euro area. As a result of the persistently strong growth in M3 over the past few years, there remains substantially more liquidity in the euro area than is needed to finance non-inflationary economic growth. This could pose risks to price stability over the medium term and warrants vigilance.","The very low level of interest rates is also fuelling private sector demand for credit. Growth in loans to non-financial corporations has picked up further in recent months. Moreover, demand for loans for house purchase has continued to be robust, contributing to strong house price dynamics in several euro area countries. The combination of ample liquidity and strong credit growth could, in some parts of the euro area, become a source of unsustainable price increases in property markets.","To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained. However, medium-term upside risks to price stability persist and need to be monitored closely. It is important that higher inflation in the short term does not become entrenched in long-term inflation expectations and wage and price-setting behaviour. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.","With regard to fiscal policies, a thorough assessment of the most recent updates of Member States’ stability programmes is under way. It is essential that Member States comply with their commitments under the Stability and Growth Pact in the implementation of 2005 budgets and in the setting of medium-term objectives. Where relevant, this implies a correction of excessive deficits this year and determined progress towards budgetary positions which are close to balance or in surplus. Such measures should prevent a repeat of past outcomes, when insufficient adjustments were made. In light of the need to prepare for population ageing, fiscal strategies should also be part of a comprehensive reform strategy aimed at raising Europe’s growth potential.","Discussions on the European fiscal framework now need to be brought to a convincing conclusion. With a view to fostering confidence, the Governing Council supports proposals that strengthen the preventive arm of the Stability and Growth Pact, which deals with the surveillance of budgetary positions. As regards the corrective arm of the Pact, the mechanisms in place must remain strong and credible in all respects. It would therefore be counterproductive to change the Regulations, dilute the 3% deficit limit or weaken the excessive deficit procedure. The fiscal framework enshrined in the Treaty on European Union and in the Stability and Growth Pact is a cornerstone of Economic and Monetary Union and thus of central importance for the cohesion of Monetary Union itself. It is important to avoid any doubts about the effectiveness of the surveillance process and the soundness of the fiscal policies of the single currency area in the long run, as such doubts would ultimately lead to higher risk premia and higher real interest rates in the euro area.","Regarding structural reforms, the ECOFIN Council has recently endorsed the Annual Report on Structural Reforms 2005, prepared by the Economic Policy Committee. The Governing Council fully supports the ECOFIN Council’s conclusion that “particular attention should be given to increasing employment rates, especially in the context of ageing populations, within the continuing need to increase growth by raising both employment and productivity.” To this end, we strongly support the Commission in its determination to promote the renewed Lisbon Strategy and we encourage national governments to show their determination in this regard by implementing structural reforms in Europe. Closing the existing implementation gap is essential in order to reap the benefits of reforms, in terms of both a higher growth potential in the medium term and improved consumer and business confidence in the short run.","We are now at your disposal for questions.","Ladies and gentlemen, it is our pleasure to welcome you to this press conference. The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Prime Minister Juncker and Commissioner Almunia.","On the whole, we continue to see no significant evidence of underlying domestic inflationary pressures building up in the euro area. Accordingly, we have left the key ECB interest rates unchanged. These interest rates are at historically low levels and are making an important contribution to the economic recovery. At the same time, upside risks to price stability over the medium term exist. These require continued vigilance on the part of the Governing Council.","I shall now explain our assessment in more detail, turning first to the economic analysis. According to Eurostat’s flash estimate, real GDP in the euro area grew at a quarter-on-quarter rate of 0.2% in the fourth quarter of 2004. In addition, third-quarter real GDP growth was revised down to 0.2%. This overall outcome for the second half of last year was disappointing. However, the composition of demand growth in the fourth quarter also offered some positive signs with regard to the underlying trend. The strengthening of domestic demand and, in particular, consumption may point to the recovery in economic activity in the euro area regaining some momentum.","There are a number of reasons why the weaker real GDP growth in the second half of 2004 could be a transitory phenomenon. On the external side, growth in the world economy remains strong, supporting euro area exports. On the domestic side, investment is expected to continue to benefit from very favourable financing conditions, robust earnings and greater business efficiency. Consumption growth should benefit from anticipated developments in real disposable income.","Accordingly, we expect continued economic growth in 2005 and 2006. This assessment is also reflected in the new ECB staff projections, which will be published today. Euro area real GDP growth is projected by the ECB’s staff to be, on average, between 1.2% and 2.0% in 2005 and between 1.6% and 2.6% in 2006. These projections are lower than those published in December 2004, reflecting the weaker economic developments in late 2004. Available forecasts from international and private sector organisations convey a broadly similar outlook.","The picture emerging from the projections contains a number of risks. On the external side, high and volatile oil prices and persistent global imbalances pose downside risks to growth. As regards exchange rates, we confirm our position – expressed when the euro rose sharply – that such moves are unwelcome and undesirable for economic growth. On the domestic side, there are uncertainties surrounding the evolution of consumption, while the very favourable financing conditions and the recovery in corporate earnings could lead to higher investment growth than currently projected.","Turning to consumer prices, annual HICP inflation declined quite substantially in January 2005, falling to 1.9% from 2.4% in December 2004. This was largely a result of base effects from developments in indirect taxes and administered prices in some countries. In February, according to Eurostat´s flash estimate, annual HICP inflation was 2.0%.","In the coming months, annual inflation rates are likely to fluctuate around 2%. Looking further ahead, there is no evidence that stronger underlying domestic inflationary pressures are building up in the euro area. Over recent quarters, wage increases have remained moderate. In the context of moderate economic growth, this trend should continue.","These views are also embodied in the ECB staff projections. Average annual HICP inflation is projected by the staff to lie between 1.6% and 2.2% in 2005 and between 1.0% and 2.2% in 2006. These projections are broadly unchanged from the Eurosystem staff projections published in December 2004 and consistent with forecasts recently released by international and private sector organisations.","Several upside risks to these projections need to be taken into account, notably future oil price developments. Developments in indirect taxes and administered prices may also again surprise on the upside. Furthermore, continued vigilance is required regarding the potential risk of past price increases leading to second-round effects in wage and price-setting throughout the economy. In this respect, developments in longer-term inflation expectations need to be monitored closely.","Further insight into the outlook for price developments at medium to longer-term horizons is provided by the monetary analysis. The latest monetary data confirm the strengthening of M3 growth observed since mid-2004. This increasingly reflects the stimulative effect of the historically very low level of interest rates in the euro area. As a result of the persistently strong growth in M3 over the past few years, substantially more liquidity in the euro area exists than is needed to finance non-inflationary economic growth. This could pose risks to price stability over the medium term and warrants vigilance.","The exceptionally low level of real interest rates is also further stimulating private sector demand for credit. Growth in loans to non-financial corporations has continued to pick up in recent months. Moreover, demand for loans for house purchase has continued to be robust, contributing to strong house price dynamics in some regions of the euro area.","To sum up, the economic analysis confirms that underlying domestic inflationary pressures remain contained, while medium-term upside risks to price stability exist and will be monitored closely. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.","Turning to fiscal policies, the Governing Council notes that, while some progress with fiscal consolidation and the correction of excessive deficits is envisaged in euro area countries’ updated stability programmes, further consolidation in a number of countries is needed. In particular, several countries do not plan to pursue an appropriately ambitious adjustment path and are not targeting close-to-balance or in-surplus budgetary positions by the end of the programme horizon. In addition, in some cases, fiscal targets are based on rather favourable growth assumptions and on insufficiently specified measures.","With respect to the Stability and Growth Pact, discussions now need to be brought to a convincing conclusion with an outcome that safeguards fiscal discipline. The credibility of the excessive deficit procedure needs to be fully preserved. This is not only fundamental for macroeconomic stability and cohesion in the euro area but also for confidence and growth prospects in all Member States.","In this regard, the Governing Council welcomes the decision by the ECOFIN Council, based on a recommendation by the European Commission, to move, for the first time, to the next procedural step in the excessive deficit procedure and to give notice, in accordance with Treaty Article 104(9), to Greece. The Governing Council also takes the view that the extension of the deadline, from 2005 to 2006, for correcting the excessive deficit pushes the room for interpretation of the rules and procedures to the limit. It is now indispensable for Greece to take effective action to correct its severe fiscal imbalances.","As regards structural developments, the euro area has seen relatively low trend productivity growth since the mid-1990s. An analysis of the determinants of productivity shows that lower productivity growth in the euro area has been partly related to higher employment due to greater participation of lower-skilled labour. Sustained wage moderation and some progress in labour market reforms aimed at increasing labour market participation appear to have partially shifted production towards a more intensive use of labour.","There are also indications that the slower pace of productivity growth observed in the euro area since the mid-1990s reflects an insufficient use of new productivity-enhancing technologies. While productivity growth has increased in sectors that produce information and communication technologies or provide related services, it has declined in many other areas of the economy. This points to structural rigidities in the euro area that prevent or hinder the fast and effective dissemination of new technologies and improved production processes across the economy.","Against this background, structural reforms that stimulate innovation, investment and productivity, and promote the use of new productivity-enhancing technologies are crucial. Stimulating product market competition, facilitating restructuring and improving human capital through adequate educational systems and “on-the-job” training are likely to speed up productivity gains from the use of new technologies.","We are now at your disposal for questions.","Ladies and gentlemen, it is our pleasure to welcome you to this press conference. The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Commissioner Almunia.","All in all, we have not changed our assessment of risks to price stability over the medium term. So far, we have seen no significant evidence of underlying domestic inflationary pressures building up in the euro area. Accordingly, we have left the key ECB interest rates unchanged. Both nominal and real interest rates are at exceptionally low levels, lending ongoing support to economic activity. However, upside risks to price stability over the medium term remain and continued vigilance is therefore of the essence.","I shall now explain our assessment in more detail, turning first to the economic analysis. Recent data and survey indicators on economic activity have been mixed. In general they point to ongoing economic growth at a moderate pace over the short term, with no clear signs as yet of a strengthening in underlying dynamics.","Looking further ahead, the conditions remain in place for moderate economic growth to continue. Global growth remains solid, providing a favourable environment for euro area exports. On the domestic side, investment is expected to continue to be supported by very favourable financing conditions, improved profits and greater business efficiency. Consumption growth should develop in line with real disposable income growth. However, at the same time, persistently high oil prices in particular pose downside risks to growth.","Turning to consumer prices, Eurostat’s flash estimate for annual HICP inflation was 2.1% in March, unchanged from February. In the coming months, annual inflation rates are likely to remain somewhat above 2%, although the exact figure will depend largely on how oil prices develop. Looking further ahead, so far we have seen no significant evidence of underlying domestic inflationary pressures building up in the euro area. Wage increases have remained contained over recent quarters and, in the context of moderate economic growth and weak labour markets, this trend is likely to continue for the time being.","However, upside risks to price stability remain. Given recent oil price rises, it is once again paramount that second-round effects stemming from wage and price-setting throughout the economy are avoided. It is particularly important that the social partners assume their responsibilities in this respect. In addition, developments in longer-term inflation expectations need to be monitored closely.","The monetary analysis provides further insight into the outlook for price developments at medium to longer-term horizons. While the latest monetary and credit data show some moderation in the pace of monetary expansion, they confirm that the stimulative effect of the low level of interest rates has remained the dominating force. In addition, the fact that monetary dynamics continue to be driven mainly by the most liquid components suggests that excess liquidity may entail risks of upward inflationary pressures in the medium to longer term. Furthermore, strong monetary and credit growth indicates the need to carefully monitor whether risks are building up in the context of strong house price increases in some regions of the euro area.","To sum up, the economic analysis confirms that underlying domestic inflationary pressures remain contained, while there continue to be medium-term upside risks to price stability which need to be monitored closely. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of such risks.","Turning to fiscal policies, recent information provides a mixed picture and continues to raise concerns. Although public finances remain sound in a few euro area countries and fiscal consolidation is progressing slowly in others, in several countries fiscal perspectives are worrying, as imbalances are not projected to decline, as planned earlier, and in some cases are even forecast to rise.","Given that inappropriate consolidation strategies and shortcomings in their implementation have, in the past, made compliance with the Stability and Growth Pact difficult, it is now essential that consolidation plans are ambitious and are fully implemented. It is equally essential that the European Commission and the ECOFIN Council strictly enforce the new agreement on the implementation of the Pact so as to restore the framework’s credibility. The Governing Council would also like to reiterate the need to deliver on fiscal and structural reforms that enhance the sustainability of public finances and confidence in the growth prospects of all Member States.","As regards structural reforms in the euro area, the Governing Council welcomes the Presidency Conclusions of the Brussels European Council of 22 and 23 March 2005, which state that “it is essential to relaunch the Lisbon Strategy without delay and re-focus priorities on growth and employment”. EU countries urgently need to promote innovation and human capital formation, establish a regulatory environment which is friendlier for businesses, accelerate market liberalisation, and increase labour market flexibility.","Attention must now shift towards implementing this reform agenda. Closing the implementation gap is essential in order to reap the full benefits of structural reforms in terms of both a higher growth potential in the medium term and improved consumer and business confidence in the short term.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Berlin. Today is the 11th time that the Governing Council has met outside Frankfurt, and I would like to thank President Weber for his invitation and hospitality. Let me also express our gratitude to the staff of the Deutsche Bundesbank for their excellent organisation of today’s meeting.","Let me now report on the outcome of today’s meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we continue to see no significant evidence of a build-up of underlying domestic inflationary pressures in the euro area. Accordingly, we have left the key ECB interest rates unchanged. The exceptionally low level of interest rates across the entire maturity spectrum provides considerable support to economic activity in the euro area. At the same time, continued vigilance with regard to upside risks to price stability is warranted.","Allow me to elaborate on our decision, turning first to the economic analysis. Regarding the current situation and the short-term outlook for economic activity, recent data and survey indicators are, on balance, on the downside. Some of the downward risks to economic growth identified earlier, in particular those related to persistently high oil prices, appear to have partially materialised over the past few months.","At the same time, when looking beyond the short term, conditions remain in place for stronger real GDP growth. On the external side, euro area exports should continue to be supported by foreign demand. On the domestic side, investment should benefit from the very favourable financing conditions, the robust corporate earnings currently being observed and ongoing improvements in corporate efficiency. Consumption growth should evolve broadly in line with expected developments in disposable income. Downside risks to economic growth continue to be related to oil price developments and global imbalances.","Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.1% in April, unchanged from March. Over the coming months, annual HICP inflation rates are likely to remain around these levels. Wage increases have remained contained over recent quarters and, in the context of moderate economic growth and weak labour markets, this trend should continue for the time being. Overall, when looking ahead, we see no significant evidence of underlying domestic inflationary pressures building up in the euro area so that inflation rates should develop in line with price stability.","However, there continue to be upside risks to price stability, relating mainly to oil price developments and their potential to lead to second-round effects stemming from wage and price-setting behaviour. In order to avoid this, it is important that the social partners continue to assume their responsibilities.","As regards the monetary analysis, monetary and credit growth remain strong despite some moderation over the recent past. These developments mainly reflect the stimulative effect of the low level of interest rates in the euro area. As monetary dynamics over the past year have mainly been driven by developments in the most liquid components of M3, this continues to signal upside risks to price stability in the medium to longer term.","To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained. However, upside risks to price stability over the medium term need to be monitored closely. Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of such risks. Against this background, longer-term inflation expectations need to be monitored closely.","As regards fiscal policies, recent information and forecasts suggest little progress in reducing fiscal imbalances in the euro area. A timely and full implementation of consolidation commitments is essential. This will strengthen the confidence of investors and consumers in the soundness of economic policies. At the same time, it is essential to implement, in a strict and timely manner, the revised Stability and Growth Pact procedures, which are soon to enter into force, so as to underpin the credibility of the EU fiscal framework.","The Governing Council has repeatedly argued in favour of structural reforms to improve the potential for higher economic growth in the euro area. Authorities are aware of the structural obstacles and have taken important measures to address them, but continued reforms will be needed in order to keep up with the unavoidable challenges arising from an ongoing deepening in the division of labour at the global level, rapid technological change and population ageing. It is important to explain to the general public that these reforms will progressively deliver higher growth and lead to more job creation, and that, as a result, our societies will be better off. Over recent years, uncertainties surrounding the structural reform agenda in some euro area countries appear to have hindered the necessary improvement in the confidence of consumers and entrepreneurs. A clear commitment to implementing the reforms and the explanation of their benefits will help to reduce such uncertainties and thereby make a considerable contribution to improving the economic outlook for the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, it is our pleasure to welcome you to this press conference. The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Commissioner Almunia.","Overall, on the basis of our regular economic and monetary analyses, we expect euro area underlying inflationary pressures to remain contained in the medium term. Accordingly, we have left the key ECB interest rates unchanged. The exceptionally low level of interest rates across the entire maturity spectrum continues to provide considerable support to economic growth in the euro area, which currently shows only moderate dynamics. At the same time, we will remain vigilant with regard to upside risks to price stability.","I shall now explain our assessment in more detail, turning first to the economic analysis. According to Eurostat’s flash estimate, real GDP grew by 0.5% quarter on quarter in the first quarter of 2005, compared with 0.2% in the previous quarter. However, figures for real GDP growth over the last two quarters partly reflect statistical effects related to working-day adjustments to the data. This has led to some understatement of growth dynamics in the last quarter of 2004 and to some overstatement in the first quarter of 2005. Most recent indicators for economic activity remain, on balance, on the downside","The moderation in economic activity observed since mid-2004 is partly related to the rise in oil prices. Looking ahead, there is scope for positive fundamental factors to again shape the outlook, assuming that the effects from adverse developments gradually diminish. Notably, global economic activity is expected to remain strong, despite some moderation from the record levels observed last year. This continues to support euro area exports and should have a potential positive impact also on investment. Investment is expected to benefit from robust earnings, improvements in business efficiency and the very favourable financing conditions. At the same time, consumption growth is expected to develop in line with real income growth.","This assessment is broadly consistent with the new Eurosystem staff projections, which will be published today. Euro area real GDP is projected to grow at rates of between 1.1% and 1.7% in 2005, and between 1.5% and 2.5% in 2006. Recent forecasts from international and private sector organisations give similar indications. In comparison with the March ECB staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been adjusted slightly downwards.","All in all, our judgement remains that real economic growth will gradually improve over the period ahead. At the same time, recent data have heightened the uncertainties surrounding the short-term evolution of domestic demand, and persistently high oil prices and global imbalances may pose downside risks to the projections for economic growth.","Turning to price developments in the euro area, according to Eurostat’s flash estimate, annual HICP inflation was 2.0% in May, compared with 2.1% in April. Over the coming months, annual HICP inflation rates are expected to remain broadly around current levels. On the one hand, energy prices are exerting upward pressure on HICP inflation. On the other hand, underlying inflationary pressure has been rather contained and, on average, wage increases have remained moderate over recent quarters.","According to the Eurosystem staff projections, average annual HICP inflation is seen to lie between 1.8% and 2.2% in 2005, and between 0.9% and 2.1% in 2006. Compared with the ECB staff projections published in March 2005, the inflation projections for 2005 have been revised slightly upwards and for 2006 slightly downwards. In 2006, this largely reflects the expected statistical effect of a planned health care reform in one euro area country, the Netherlands, which is estimated to imply a one-off reduction of 0.2 percentage point in the euro area inflation rate for 2006. This effect should be excluded from the assessment of the medium-term outlook for price stability.","Taking into account the assumptions underlying the projections, upside risks to the inflation projections prevail. These risks relate notably to future oil price developments, indirect taxes and administered prices. Furthermore, ongoing vigilance is required in order to ensure that past price increases do not lead to second-round effects in wage and price-setting throughout the economy. In this respect, continued responsibility on the part of social partners is very important.","The monetary analysis provides further insight into the risks to price stability over the medium to longer term. Over the past few months, money and credit have continued to grow robustly in the euro area. These developments mainly reflect the stimulative effect of the low level of interest rates in the euro area. The monetary dynamics are driven by the strong growth of the most liquid components of broad money contained in the narrow aggregate M1. At the same time, the euro area private sector’s demand for MFI loans, in particular for house purchase, has remained strong.","The assessment of ample liquidity in the euro area is confirmed by all indicators. Also in the light of the increasingly liquid nature of monetary expansion, the accumulated stock of the broad monetary aggregate M3 may entail upside risks to price stability over the medium to longer term.","To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained in the medium term. At the same time, it is necessary to underline the conditionality of this assessment and the related upside risks to price stability. Cross-checking with the monetary analysis supports the case for ongoing vigilance.","As regards fiscal policies, developments in the euro area remain of concern. While a few countries are succeeding in maintaining sound budgetary positions, in several countries it is essential that fiscal consolidation is given the highest priority in view of the budgetary situation. Moreover, the revised rules and procedures for the Stability and Growth Pact, expected to take effect soon, need to be implemented in a strict manner to ensure credibility and to promote a timely return to sound budgetary positions.","With respect to structural reforms, the so-called “Integrated Guidelines” for 2005-2008, covering both the new Broad Economic Policy Guidelines and the new Employment Guidelines, are soon to be adopted. These guidelines for economic and employment policies will, in turn, serve as the basis for action at the EU level and for Member States to draw up national reform programmes by the autumn of this year. The new governance structure of the Lisbon agenda should provide new impetus to structural reforms in Europe. These reforms are vital for Europe's ability to respond to the challenges arising from an ongoing deepening in the global division of labour, the fast process of technological change and the ageing of the population. A determined approach in addressing these challenges and successful communication that convinces the public of the benefits of the reforms hold the key to both improving the economic outlook in the short run and sustaining the prosperity of European citizens in the longer term.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to our press conference.","The Governing Council of the ECB expresses its deep sympathy and its total solidarity with the British people and the Bank of England in these dreadful circumstances. We have observed a minute of silence in memory of the victims of these terrorist attacks and we convey our sincere condolences to the British people and the Bank of England.","The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council of the ECB, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have concluded that the monetary policy stance is appropriate, given the current outlook for price stability over the medium term. Accordingly, we have decided to leave the key ECB interest rates unchanged. Across the maturity spectrum, interest rates in the euro area are low by historical standards, in both nominal and real terms, and thus lend ongoing support to economic activity. The Governing Council will continue to monitor carefully all factors that might affect this assessment and remains vigilant with respect to the emergence of risks to price stability over the medium term.","Allow me to explain our assessment in greater detail.","In the context of our economic analysis, recent indicators of economic activity in the euro area have, on balance, confirmed that growth has remained subdued. High and rising oil prices in particular appear to have weighed on demand and confidence. On the basis of current information, the growth rate in the second quarter of this year is expected to be lower than the first quarter growth rate of 0.5%, quarter on quarter. Available data are still mixed, with some of the most recent indicators showing a slight improvement, but there are no signs as yet that a more sustained recovery in economic activity has already started. At the same time, looking beyond the short term, there continues to be reason to expect a gradual improvement in economic activity in the euro area. On the domestic side, investment should benefit from the very favourable financing conditions, the robust growth of corporate earnings currently observed and ongoing improvements in corporate efficiency. Consumption growth should evolve broadly in line with expected developments in disposable income. On the external side, ongoing growth in global demand and improvements in euro area price competitiveness should support euro area exports. This assessment is in line with available forecasts and projections.","This baseline scenario for growth continues to be surrounded by a good deal of uncertainty. On balance, risks to economic growth lie on the downside and are notably related to the persistence of high oil prices, the low level of confidence prevailing in the euro area and global imbalances.","Turning to price developments, annual HICP inflation was 2.1% in June, according to Eurostat’s flash estimate, compared with 1.9% in May. Over the next few months annual HICP inflation rates are expected to fluctuate around current levels and may not fall below 2% for the remainder of 2005. This outlook mainly reflects recent developments in oil prices, which were seen as an upside risk in the context of the June 2005 Eurosystem staff inflation projections. However, wage increases have remained contained over recent quarters and, in the context of moderate economic growth and weak labour markets, this trend should continue for the time being. Overall, we continue to see no significant evidence of underlying domestic inflationary pressures building up in the euro area.","At the same time, upside risks to this scenario for inflation warrant close monitoring. These risks relate mainly to oil price developments and their potential to lead to second-round effects stemming from wage and price-setting behaviour. It is important that the social partners continue to meet their responsibilities. Moreover, uncertainties about future developments in administrative prices and indirect taxes need to be taken into account when assessing currently available inflation projections.","Looking at inflation prospects over medium to longer horizons, our assessment is also based on the results of our monetary analysis. In line with developments since mid-2004, monetary and credit growth in the euro area remain strong. The stimulating impact of the low level of interest rates has remained the dominant factor driving monetary developments, as reflected in the strength of M1 growth and the dynamism of loans to the private sector. Liquidity remains ample by all plausible measures. Overall, monetary developments support the case for vigilance with regard to upward risks to price stability over medium to long-term horizons.","To sum up, the economic analysis confirms that domestic inflationary pressures over the medium term remain contained in the euro area, while oil price developments in particular imply some upward revisions to the main scenario for price developments. The monetary analysis identifies risks to price stability over the longer term. Overall, cross-checking the information from the two pillars suggests a need for ongoing vigilance in order to maintain inflation expectations in line with price stability. In fact, by keeping medium-term inflation expectations firmly anchored at levels consistent with price stability, monetary policy is making a significant contribution towards a recovery in economic growth.","Prudent fiscal policies could provide considerable support for confidence in the euro area. The discussions on revising the Stability and Growth Pact regulations have been concluded and rigorous implementation is now key to ensuring an effective framework for fiscal policy coordination and discipline. This is all the more true as current and projected fiscal deficits in several euro area countries still need to be addressed with rigour. In a number of cases these deficits not only imply a rising debt ratio, but also leave no safety margin for short-term budgetary relief in the event of adverse developments. In this context, as significant revisions of past deficit and debt figures have been reported for a few countries, let me also reiterate previous calls by the Governing Council for the reliable compilation and timely reporting of government finance statistics.","Finally, let me conclude with a few words on structural reform. As we have stressed repeatedly, a decisive and comprehensive set of measures aimed at achieving a more dynamic and competitive European economy with flexible labour and product markets is urgently needed. The primary objective of such measures is to deal with the ongoing challenges from globalisation, rapid technological change and ageing populations and, overall, to ensure greater resilience to shocks. These challenges are not specific to the euro area. Successful structural reforms would, however, also contribute to fostering the adjustment processes within the euro area. In particular, they would allow those member countries with a weaker record in terms of economic growth and employment creation to perform better in the future. As regards existing growth and inflation differentials within the euro area, there is clear evidence that the dispersion of inflation and real GDP growth rates in the euro area is not materially different from that of the United States and it does not show any signs of having increased since 1999. However, in cases where differences are not due to catching-up processes or temporary factors, structural reforms are even more necessary to enhance economic performance and flexibility in the adjustment process.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to our press conference. Let me start by saying that the Governing Council of the ECB again wishes to express its profound sadness at the loss of its first chairman and President of the ECB, Dr Willem F. Duisenberg, who passed away on 31 July. The Governing Council observed a moment of silence and, on behalf of all of the current and former members of the Governing Council, I paid tribute to the great qualities and achievements of my predecessor at the memorial service held in Amsterdam on 6 August. We owe it to his skilful leadership that the ECB and the Eurosystem successfully passed the stages of their establishment and initial challenges to become a central banking system that, through its actions, has gained the respect and trust of the people of the euro area and beyond.","The Vice‑President and I will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have concluded that the monetary policy stance remains appropriate, given the current outlook for inflation rates over the medium term. The prevailing exceptionally low level of both nominal and real interest rates across the entire maturity spectrum provides considerable support to economic activity in the euro area. At present our judgement is that, although upside risks to price stability exist, we continue to see no significant evidence of a build-up in underlying inflationary pressures in the euro area. However, not least in view of the risk of second-round effects from ongoing oil price increases, the Governing Council continues to monitor the development of inflation expectations very closely. At present, particular vigilance with regard to upside risks to price stability is warranted.","Allow me to explain our assessment in greater detail, turning first to the economic analysis. According to Eurostat’s flash estimate, real GDP grew at a quarter-on-quarter rate of 0.3% in the second quarter of 2005, compared with 0.4% in the first quarter according to the latest data releaseEconomic activity thus continued to grow moderately in the euro area. The most recent survey indicators have, on balance, been supportive to the view that economic growth could improve in the second half of 2005, while higher oil prices continue to weigh on demand and confidence.","On the external side, ongoing growth in global demand and improvements in euro area price competitiveness should support euro area exports. On the domestic side, investment should benefit from very favourable financing conditions, the robust growth of corporate earnings and ongoing improvements in corporate efficiency. Consumption growth should gradually rise, broadly in line with expected developments in disposable income.","This assessment is broadly consistent with the new ECB staff projections, which will be published today. Euro area real GDP is projected by staff to grow at rates of between 1.0% and 1.6% in 2005 and between 1.3% and 2.3% in 2006. Recent forecasts from international and private sector organisations give a similar picture. In comparison with the June Eurosystem staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been revised downwards slightly, reflecting both the downward revision of growth data for the first quarter of this year and the effects of higher oil prices.","On balance, risks to the economic growth projections continue to lie on the downside, and relate to higher oil prices, low consumer confidence and concerns about global imbalances.","Turning to price developments, annual HICP inflation was 2.1% in August according to Eurostat’s flash estimate, compared with 2.2% in July. Over the next few months, annual HICP inflation rates are expected to fluctuate around current levels, mainly due to recent developments in oil prices. Looking further ahead, ECB staff project average annual HICP inflation to lie between 2.1% and 2.3% in 2005 and between 1.4% and 2.4% in 2006. The latest projections constitute considerable upward revisions to the Eurosystem staff inflation projections published in June, reflecting the fact that oil prices have once again increased by more than was suggested earlier by forward rates. At the same time, wage increases have remained contained over recent quarters; the projections are based on the assumption that this trend will prevail for the time being given the current labour market situation. Overall, we continue to see no significant evidence of underlying domestic inflationary pressures building up in the euro area.","Risks to this new baseline inflation scenario are on the upside and relate to potential further rises in oil prices, administered prices and indirect taxes. More fundamentally, the main risks to the inflation outlook stem from potential second-round effects in wage and price-setting behaviour triggered by ongoing oil price rises. In this respect, it is key that the social partners continue to meet their responsibilities. Against this background, we will continue to monitor wage developments and inflation expectations very closely. Ongoing vigilance is required in order to ensure that longer-term inflation expectations remain well-anchored in the euro area.","Turning to the monetary analysis, the latest data confirm the strong monetary and credit growth which has been observed since mid-2004. The monetary dynamics are driven by the prevailing low level of interest rates, as reflected in the robust growth of the more liquid components of M3. Low interest rates are also fuelling credit expansion, with the strengthening of the demand for loans broadly based across the private sector. The growth of mortgage borrowing remains very strong. In this context, price dynamics in the housing markets need to be monitored closely. The liquidity situation in the euro area remains ample by all plausible measures, indicating risks to price stability over medium to longer horizons.","To sum up: recent oil price developments have pushed up the inflation projections for the year ahead, while medium-term domestic inflationary pressures still remain contained in the euro area. However, the balance of risks to the baseline inflation scenario is tilted to the upside. Cross-checking the economic analysis with the monetary analysis confirms the need for particular vigilance in order to keep medium-term inflation expectations firmly anchored at levels consistent with price stability. By achieving this, monetary policy is making a significant contribution towards a recovery in economic growth.","Fiscal policies will make their best contribution to stability, growth and confidence if prevailing imbalances are tackled as part of determined and well-designed reform programmes. A rigorous implementation of the revised Stability and Growth Pact would reinforce the credibility of reform plans and boost expectations of a sound fiscal and growth situation. Against this background, it is regrettable that the pace of fiscal consolidation remains too slow. In some countries, targets for correcting excessive deficits are at risk. Moreover, due to a very generous application of the new rules of the Pact, countries which have recently breached the 3% deficit limit are being granted relatively long periods to correct the situation. The Governing Council therefore urges Member States to step up consolidation efforts where needed and to implement the revised rules in a manner that supports these efforts and deters future slippages.","As regards structural reforms, the European Commission has recently presented the “Community Lisbon Programme” and a list of measures at the EU level to relaunch the Lisbon strategy. The programme focuses on enhancing knowledge and innovation in order to strengthen growth, on making Europe a more attractive place to invest and work, and on creating more and better jobs. It includes, for example, measures to further open EU markets and to simplify the regulatory framework within which business operates. The Community Lisbon Programme will be complemented by the introduction of national action plans for growth and jobs, which the Member States will present this autumn. Progress at both the Community and the Member State level is crucial to addressing the economic challenges facing the EU.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Athens. The Governing Council has, today, met for the 12th time outside Frankfurt, meaning that it has now met once in each of the euro area member countries. I would particularly like to thank Governor Garganas for his kind hospitality and express our special gratitude to the staff of the Bank of Greece for the perfect organisation.","Let me now report on the outcome of today’s meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, despite renewed upward pressure on prices stemming mainly from oil market developments, we have concluded that the monetary policy stance still remains appropriate. Accordingly, we have decided to leave the key ECB interest rates unchanged. At the same time, strong vigilance with regard to upside risks to price stability is warranted. It is essential that the increase in the current inflation rate does not translate into higher underlying inflationary pressures in the euro area. Strong vigilance is also called for in the light of ample liquidity in the euro area. Across the maturity spectrum, interest rates in the euro area remain very low in both nominal and real terms, and thus lend ongoing support to economic activity. For this support to continue, it is of the essence that inflation expectations remain firmly anchored at levels consistent with price stability.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","Real GDP has been growing at a quarter-on-quarter rate of 0.4% and 0.3% over the first two quarters of 2005, dampened in particular by higher oil prices. In line with our staff projections, recent survey indicators, on balance, support the view that economic growth could gradually pick up from the second half of this year onwards. On the external side, ongoing growth in global demand should support euro area exports. On the domestic side, investment should benefit both from continuously favourable financing conditions and from the robust growth of corporate earnings. Consumption should gradually recover, broadly in line with expected developments in real disposable income.","This outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence. Temporarily, further uncertainty arose as to the economic effects of the recent hurricanes in the United States, which assessments, in the meantime, have generally suggested to be limited and short-term.","Turning to price developments, recent increases mainly in oil prices have pushed headline inflation rates to levels significantly in excess of 2%. According to Eurostat’s flash estimate, annual HICP inflation was 2.5% in September, compared with 2.2% in the previous two months, and it is likely that HICP inflation will remain elevated in the short term. In interpreting this jump in the annual inflation rate, it is key to make a clear distinction between temporary, short-term factors on the one hand, and those of a more lasting nature on the other.","While no detailed information on developments in the components of HICP in September is available as yet, it appears that oil price increases have again played an important role, this time exacerbated by a much stronger increase in petrol prices owing to exceptional capacity constraints at refineries following the two hurricanes in the United States. If a gradual normalisation in this market segment is confirmed, an unwinding of the sharp increases in spreads between oil prices and refined products could materialise. Hence, these increases may be only temporary.","However, there is currently no indication that oil prices will moderate significantly in the foreseeable future. Rather, markets expect oil prices to remain at high levels, driven mainly by buoyant global demand and, to some extent, by fragilities on the supply side. Accordingly, this scenario underlies our forward-looking assessment of price developments.","Crucially, what matters is how these developments affect the outlook for price stability over the medium term. For the time being, there continues to be no clear evidence of domestic inflationary pressures building up in the euro area. In particular, wage increases have remained contained over recent quarters and, with labour markets weak, this should continue for the time being. Our main scenario, therefore, remains one of elevated inflation rates over the short term, with a gradual decline thereafter.","Upside risks to this scenario have, however, increased. These relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed, on account of higher oil prices being passed on to consumers via the domestic production chain, and to potential second-round effects in wage and price-setting behaviour, all of which play an important role in our assessment for price stability over the medium term. In addition, possible further increases in administered prices and indirect taxes have to be taken into account. Accordingly, strong vigilance is required in order to ensure that longer-term inflation expectations for the euro area remain well-anchored.","The monetary analysis provides further insight into inflation prospects over medium to longer horizons. Money and credit have continued to grow robustly in the euro area over the past few months, with the annual rate of M3 growth now exceeding 8%. The strength of monetary growth has been increasingly driven primarily by the prevailing low level of interest rates. In recent months, the short-term dynamics of M3 have gained further momentum and the growth of borrowing, in particular mortgage loans, remains very strong. In this context, price dynamics in a number of housing markets need to be monitored closely. Strong monetary and credit growth, in the context of an already ample liquidity situation in the euro area, points to risks to price stability over medium to longer horizons.","To sum up, the economic analysis indicates that oil and petrol price increases, in particular, imply upward revisions to the outlook for short-term price developments. Some of these increases can be expected to be of a temporary nature, while others are likely to be more lasting. Domestic inflationary pressures over the medium term still remain contained in the euro area, but significant upside risks have to be taken into account. Moreover, the monetary analysis identifies upside risks to price stability over the medium to longer term.","Overall, cross-checking the information from the two pillars confirms the need for strong vigilance in order to maintain inflation expectations in line with price stability. By keeping medium-term inflation expectations firmly anchored at levels consistent with price stability, monetary policy is making a significant ongoing contribution towards a recovery in economic growth.","As regards fiscal policies in the euro area, most recent information continues to provide a very mixed picture. Some countries report significant imbalances, while others continue to maintain sound fiscal positions. Preparations for 2006 budgets are in their final stages in most euro area countries. It is essential that forthcoming budgets reflect the need for fiscal consolidation that both progresses at the appropriate pace and is embedded in a well-designed and comprehensive reform strategy. This would help to support confidence within the euro area by strengthening expectations of sustainable and growth-friendly public finances and by enhancing the credibility of the reformed Stability and Growth Pact. As for the impact of high oil prices on public finances, consolidation of budgets must be continued. Let me also recall the latest G7 statement, which affirms that subsidies and artificial price caps that constrain the price of oil and oil products have an adverse effect on the global market and should be avoided.","In the context of its regular discussions about structural reform issues, the Governing Council focused on unit labour cost (ULC) developments within the euro area, which play an important role in determining inflation and competitiveness patterns across the euro area countries. Since the inception of EMU, several euro area countries have experienced significantly larger cumulative increases in their ULCs than the euro area average. On the other hand, some countries have exhibited cumulative ULC developments significantly below the euro area average.","It must be understood that some differences in ULC growth rates are a natural feature of a well-functioning monetary union, as these may reflect catching-up processes or necessary adjustments to past shocks. In this respect, the flexibility within the euro area may well have been underestimated in its early phase of existence.","At the same time, there is no room for complacency. In some euro area countries, wage developments have substantially and persistently exceeded labour productivity growth, leading to relatively strong ULC developments over a prolonged period of time, higher inflationary pressures and losses in competitiveness. This may be, at least partially, due to wage rigidities, such as an explicit or de facto indexation of nominal wages to prices or high reservation wages determined by the level of unemployment benefits, and to a lack of competition in some sectors.","In the context of external shocks, such as sharp increases in oil prices, there is an even greater need for speeding-up structural reforms. Together with the completion of the EU internal market, such reforms would support ULC developments that are conducive to price stability and would further smooth the functioning of adjustment mechanisms in the euro area, thereby strengthening the foundations for sustained growth in output and employment.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to our press conference. Let me report on the outcome of today’s meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, taking into account ongoing upward pressure on prices stemming mainly from energy price developments, we have concluded that the monetary policy stance still remains appropriate. Accordingly, we have decided to leave the key ECB interest rates unchanged. At the same time, strong vigilance with regard to the upside risks to price stability is warranted. Strong vigilance is also called for in the light of ample liquidity and buoyant monetary and credit growth in the euro area. It is of the essence that the increase in current inflation rates does not translate into inflationary pressures over the medium term and to ensure that inflation expectations remain firmly anchored at levels consistent with price stability. Across the maturity spectrum, interest rates in the euro area remain very low in both nominal and real terms, and the current very accommodative stance of monetary policy lends considerable support to economic activity.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","Although economic growth has been dampened by the marked increase in oil prices over recent quarters, it appears that the euro area economy has shown considerable resilience to this shock, supported also by responsible wage-negotiating behaviour. Moreover, the latest indicators suggest that economic activity is currently strengthening. This would be in line with the September ECB staff projections, which indicate a gradual recovery from the second half of 2005 onwards. On the external side, it is projected that ongoing growth in global demand will support euro area exports, and on the domestic side, that investment will benefit from continued favourable financing conditions, as well as from the robust growth of corporate earnings. Consumption should gradually recover, broadly in line with expected developments in real disposable income. At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence.","Turning to price developments, recent increases in mainly energy prices have pushed headline inflation rates to levels significantly in excess of 2%. According to Eurostat’s flash estimate, annual HICP inflation was 2.5% in October 2005, compared with 2.6% in September and 2.2% in the two preceding months. It is likely that HICP inflation will remain elevated in the short term. As we stressed in October, it is key in interpreting current inflation rates to make a clear distinction between temporary, short-term factors on the one hand, and those of a more lasting nature on the other. While some developments might prove to be transitory, markets expect oil prices to remain at high levels, driven mainly by buoyant global demand and, to some extent, by fragilities on the supply side. This suggests a more lasting impact of energy prices on overall price developments.","This assumption underlies our forward-looking assessment of price developments. At the same time, wage increases have remained contained over recent quarters and, with labour markets weak, this should continue for the time being. Moreover, pressure from manufacturing prices remains low given strong global competition. All in all, while inflation rates are expected to stay above 2% over the shorter term, there continues to be no clear evidence yet of domestic inflationary pressures building up in the euro area.","We remain, however, concerned about the medium-term upside risks to this scenario. As we stressed a month ago, these relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed, on account of higher oil prices being passed on to consumers via the domestic production chain, and to potential second-round effects in wage and price-setting behaviour. In addition, possible further increases in administered prices and indirect taxes have to be taken into account. Hence, strong vigilance is required to ensure that medium and long-term inflation expectations for the euro area remain well-anchored.","The monetary analysis also points to increased upside risks to price stability over the medium to longer term. Liquidity in the euro area is very ample by all plausible measures. Moreover, the strengthening of monetary growth observed since mid-2004 has gained further momentum over the past few months. Growth in the monetary aggregate M3 has been driven by its most liquid components, confirming the increasingly dominant impact of the low level of interest rates. Furthermore, the growth of borrowing, especially mortgage loans, remains very robust. In this context, price dynamics in a number of housing markets need to be monitored closely.","To sum up, the economic analysis indicates that energy price increases, in particular, imply upward revisions to the outlook for short-term price developments. Some of the contributing factors can be expected to be temporary but others are likely to be more lasting. Domestic inflationary pressures over the medium term still remain contained in the euro area, but significant upside risks have to be taken into account. Moreover, the monetary analysis identifies increased risks to price stability over the medium to longer term. Overall, cross-checking the information from the two pillars confirms that strong vigilance is warranted to keep inflation expectations in line with price stability. Only by keeping medium and long-term inflation expectations firmly anchored at levels consistent with price stability can monetary policy make a significant ongoing contribution towards a recovery in economic growth.","As regards fiscal policies, a number of countries have presented their 2006 budget plans. Despite some welcome progress with fiscal consolidation, the outlook for countries in excessive deficit is a matter of great concern, as there is a risk of consolidation not proceeding and commitments for this year and next not being met. Further delays in the correction of excessive deficits and a continued inclination to look for the most lenient way to implement the procedural steps of the revised Stability and Growth Pact risk undermining the Pact’s credibility. This must be avoided. All parties involved in the forthcoming decisions carry an important responsibility to ensure the proper functioning of the overall fiscal framework in the future. This would be the most effective way to enhance the growth prospects of the euro area and to build confidence in public finances ahead of the time when the challenges of population ageing set in. We therefore urge countries with fiscal imbalances to give priority to their timely correction and to implement the revised Pact rigorously. This will send the right signal to the public and support the credibility of the fiscal framework.","As regards structural reforms, we stress again the urgent need to increase the flexibility of labour and product markets in order to achieve a more dynamic and competitive European economy and to help foster the adjustment processes within the euro area. The opportunities arising from globalisation and rapid technological change can best be captured by allowing and by speeding up structural change with a view to enhancing potential growth and employment creation. This would also help to facilitate the necessary adjustment to the higher level of oil prices by further increasing energy efficiency and energy savings, while avoiding distortionary measures that hamper the adjustment process.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have decided to increase the key ECB interest rates by 25 basis points, after two and a half years of maintaining rates at historically low levels. Our decision to increase interest rates was warranted so as to adjust our accommodative monetary policy stance, while taking into account the risks to price stability that we have identified in our economic analysis, cross-checked by our monetary analysis. Our decision will contribute to keeping medium to long-term inflation expectations in the euro area solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth in the euro area. In fact, interest rates across the entire maturity spectrum continue to remain very low in both nominal and real terms. Thus, our policy remains accommodative and continues to lend considerable support to sustainable economic activity and job creation. We will continue to monitor closely all developments with respect to risks to price stability.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","Recent data and survey evidence indicate that economic activity has strengthened in the second half of this year. According to Eurostat’s first estimate, real GDP growth was 0.6% quarter on quarter in the third quarter of 2005, after 0.3% in the first and 0.4% in the second quarter. Moreover, the information on business confidence broadly remains consistent with continued economic growth towards the end of the year. Looking ahead, on the external side, ongoing growth in global demand should support euro area exports, while on the domestic side, investment should benefit from continued favourable financing conditions and the robust growth of corporate earnings. Private consumption should grow broadly in line with expected developments in real disposable income. At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to higher than expected oil prices, concerns about global imbalances and weak consumer confidence.","This assessment is broadly consistent with the December 2005 Eurosystem staff projections. Euro area real GDP is projected to grow at rates of between 1.2% and 1.6% in 2005, and between 1.4% and 2.4 % in 2006 and 2007. Most recent forecasts by international organisations give a similar picture. In comparison with the September 2005 ECB staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been revised slightly upwards.","Turning to price developments, recent increases – mainly in energy prices – have lifted headline inflation rates to levels significantly in excess of 2%. According to Eurostat’s flash estimate, annual HICP inflation was 2.4% in November 2005, compared with 2.6% and 2.5% in the two preceding months. It is likely that annual HICP inflation rates will remain elevated in the short term.","In interpreting current inflation rates, it is important to make a clear distinction between temporary, short-term factors, on the one hand, and factors of a more lasting nature, on the other. In that respect, it is of crucial importance to take a strictly forward-looking perspective, which does not allow much comfort to be drawn from the current, comparatively lower rates for measures of inflation that exclude certain components, such as energy or certain categories of food. Such measures of “core” inflation have, at least in the past, been shown to lag behind, rather than lead, the developments in headline inflation. In addition, the increase in energy prices to a large extent reflects higher global demand for energy. While it is difficult to quantify precisely this effect, it would appear inappropriate to exclude energy from the price index and at the same time retain other items, such as internationally traded manufactured goods. Owing to the same forces of globalisation, these goods currently exhibit little upward movement in prices and even suggest a downward trend. All in all, in line with our monetary policy strategy, a comprehensive and forward-looking analysis is warranted of the main underlying developments driving the outlook for price stability. This comprehensive assessment encompasses the information contained in various measures of inflation.","An important input into our analysis is provided by the Eurosystem staff projections. The projections indicate average HICP inflation to lie between 2.1% and 2.3% in 2005, and between 1.6% and 2.6% in 2006. These results constitute an upward revision to the ECB staff projections of September 2005. They mainly reflect that the effects of the statistical treatment of the 2006 health reform in the Netherlands are no longer expected to distort the inflation figures for 2006. For 2007 an average inflation rate of between 1.4% and 2.6% is projected. Underlying these projections is the assumption that wage increases will remain contained, as has been the case over recent quarters. Most recent forecasts by international organisations give a broadly similar picture.","In the view of the Governing Council, the main scenario for price stability emerging from the economic analysis remains subject to upside risks. Such risks relate to uncertainties arising from oil market developments, the pass-through of previous oil price increases to consumers via the domestic production chain, the possibility of second-round effects in wage and price-setting behaviour, as well as further increases in administered prices and indirect taxes.","Evidence pointing to increased upside risks to price stability over the medium to longer term comes from the monetary analysis. Liquidity in the euro area is ample by all plausible measures. The strengthening of monetary growth observed since mid-2004 has gained further momentum over the past months. Growth in the monetary aggregate M3 has been driven by its most liquid components, confirming the increasingly dominant impact of the low level of interest rates. Furthermore, the growth of borrowing – especially mortgage loans – remains very robust. In this context, price dynamics in a number of housing markets need to be monitored closely.","To sum up, increased risks to price stability identified by the economic analysis have been cross-checked with the monetary analysis. An adjustment of our monetary policy stance was therefore warranted. Today’s decision will contribute to keeping medium and long-term inflation expectations in line with price stability. Keeping inflation expectations firmly anchored at levels consistent with price stability will permit monetary policy to continue to make a significant contribution towards a sustainable recovery in economic growth and job creation in the euro area. To this effect, we will continue to monitor closely all developments relevant to the medium-term outlook for price stability.","As regards fiscal policies, euro area countries are now finalising their 2006 budgets and stability programmes. Plans to foster sound public finances and to undertake fiscal reforms that boost economic growth and prepare for the challenges related to population ageing in some countries are welcome. However, in countries with fiscal imbalances, the speed of consolidation is disappointingly slow and there is a high risk that commitments are not being met. It is, therefore, essential that fiscal consolidation is prioritised again as part of a comprehensive and growth-friendly reform programme. This would build confidence in the proper functioning of the Stability and Growth Pact and be the best way in which fiscal policies in the euro area can underpin economic growth.","With respect to structural reforms, the Governing Council welcomed the 2005-2008 Lisbon National Reform Programmes that were submitted by EU Member States in October and November 2005, in line with the renewed Lisbon Strategy. These programmes present key country-specific challenges and structural reform measures to increase growth and employment. A parallel Community Lisbon Programme was adopted by the Commission in July 2005 to complement the national programmes with actions to be taken at the European level. Taken together, the programmes show a welcome political commitment on the part of the Member States and the Community, which could give renewed impetus to the implementation of structural reforms. To this end, it is important to match ambitious objectives with concrete policy measures and take new reform initiatives, and to monitor, evaluate and communicate the reform process effectively. Achieving the goals of the Lisbon Strategy is critical in the face of the triple challenge of accelerating globalisation, rapid technological change and ageing populations.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I would first like to express to all of you our best wishes for the New Year and welcome you to this press conference. Let me now report on the outcome of today’s meeting of the ECB’s Governing Council, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have decided to keep the key ECB interest rates unchanged following the increase of 25 basis points on 1 December 2005. The information which has become available since then supports the assessment that an adjustment of our very accommodative monetary policy stance was warranted. It remains essential to keep medium to long-term inflation expectations in the euro area solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. Maintaining price stability over the medium term is our guiding principle, and we will consistently apply it when examining new information, making our judgements and taking decisions. With interest rates across the whole maturity spectrum remaining historically low in both nominal and real terms, and with our monetary policy stance remaining accommodative, we will continue to monitor very closely all developments with respect to risks to price stability over the medium term.","Allow me to explain our assessment in greater detail, turning first to the economic analysis. According to the information available, real GDP growth did indeed improve in the second half of 2005, as we expected. According to Eurostat’s first estimate, real GDP grew at a quarter-on-quarter rate of 0.6% in the third quarter of 2005, compared with 0.4% in the second quarter. The breakdown of GDP data for the third quarter of 2005 confirmed a stronger contribution from domestic demand. Moreover, recent economic indicators and survey data support the view that the expansion of economic activity broadly maintained its momentum in the fourth quarter of 2005 and will continue to do so in the first months of 2006, notwithstanding the impact of high oil prices.","Looking further ahead, the conditions remain in place for sustained growth of economic activity, in line with our staff projections and other available forecasts. On the external side, the continued strength of global demand should support euro area exports. On the domestic side, investment should further benefit from continued very favourable financing conditions, robust corporate earnings and gains in corporate efficiency. Consumption growth should gradually rise, broadly in line with expected developments in disposable income.","Risks to this outlook for economic growth continue to lie on the downside and relate to high and volatile oil prices, concerns about global imbalances and the level of consumer confidence in the euro area, although the latter is improving.","Turning to price developments, annual HICP inflation was 2.2% in December, according to Eurostat’s flash estimate, compared with 2.3% in November and 2.5% in October. This decline was the result of some relaxation of earlier tensions in oil and petrol markets. Nevertheless, annual HICP inflation rates are expected to remain at elevated levels over the short term, mainly on account of the most recent increases in oil prices and some adverse base effects. Beyond the short term, indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact. Meanwhile, wage increases have remained moderate over recent quarters. All in all, the information available remains consistent with the scenario for price developments as reflected in the December staff projections.","Risks to this scenario remain on the upside and include further rises in oil prices, additional increases in administered prices and indirect taxes, as well as – more fundamentally – potential second-round effects in wage and price-setting behaviour. It is therefore crucial that the social partners continue to meet their responsibilities also in the context of a more favourable economic environment.","Turning to the monetary analysis, the annual growth rate of M3 moderated somewhat in November, but remained very robust, mainly owing to the stimulative impact of the prevailing low level of interest rates. The strong growth of M3 continues to be driven by significant contributions from its most liquid components. The growth of loans to the private sector – and, in particular, mortgage borrowing – has strengthened further over recent months, from already rapid rates of growth. Against this background, price dynamics in the housing markets need to be monitored closely. Liquidity in the euro area remains ample by all plausible measures. Strong monetary and credit growth in a context of already ample liquidity in the euro area points to upside risks to price stability over medium to longer horizons.","To sum up, the economic analysis suggests that some upward impact on HICP inflation will result from the indirect effects of recent oil price rises and already announced changes to administered prices and indirect taxes. It also indicates that risks to price stability over the medium term remain on the upside. This assessment is confirmed by cross-checking the economic analysis with the monetary analysis. It is essential that such risks do not affect medium-term inflation expectations, which need to remain firmly anchored at levels consistent with price stability. Monetary policy can thereby effectively contribute to sustainable economic growth and job creation. Accordingly, we will continue to monitor very closely all developments with respect to risks to price stability over the medium term.","As regards fiscal policy, most euro area countries have submitted their updated stability programmes, which include their medium-term budget plans. The upcoming assessment of these programmes by the ECOFIN Council and their subsequent implementation provide an opportunity to forcefully underpin the commitment to sound fiscal policies and the rigorous implementation of the Stability and Growth Pact. This would have an important positive effect on confidence. This effect is likely to be considerable if emphasis is given to well-defined and credible consolidation measures, restraint in expenditure commitments, and the incorporation of fiscal measures into a comprehensive and growth-friendly reform agenda.","With respect to structural reforms, the Governing Council welcomes the ECOFIN Council’s Conclusions of 6 December 2005 on the Lisbon National Reform Programmes and the intended response to the challenges of globalisation. In fact, the process of international economic and financial integration, characterised by strong growth in trade and capital flows, has been one of the driving factors behind the rise in Europe’s prosperity over the past decades. The ongoing transformation of the world economy, reflecting technological advances and the entrance of new economies into the world market, again offers great opportunities in terms of higher living standards. In order to translate these chances into achievements, Europe would greatly benefit from more flexible labour and product markets so as to speed up the necessary changeover from contracting to expanding activities and to minimise adjustment costs. It would also profit considerably from a more stimulative business environment which fosters the ability to innovate, invest and create new firms. Moreover, a fully operational EU internal market, including for services, offers great opportunities. The initiatives taken to relaunch the Lisbon strategy are a welcome step in the right direction.","We are now at your disposal for questions.","Ladies and gentlemen, allow me to welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have decided to leave the key ECB interest rates unchanged. We have also concluded that the most recent information from the economic analysis broadly underpins our assessment of the outlook for price developments and the euro area economy, and that monetary and credit growth remains strong and liquidity ample. Against this background, we will exercise vigilance so as to ensure the solid anchoring of long-term inflation expectations at levels in line with price stability. Such vigilance is also warranted, given the historically low levels of both nominal and real interest rates across the whole maturity spectrum and the overall accommodative stance of monetary policy. In order for monetary policy to make an ongoing contribution towards supporting growth and employment in the euro area, inflation expectations must be firmly anchored.","Let me now explain our assessment in more detail.","Turning first to the economic analysis, recent data continue to lend support to the scenario for economic activity embodied in the December 2005 Eurosystem staff projections. Hence, our assessment of the outlook for growth in the euro area has been broadly confirmed. Economic activity started to improve and broaden in the second half of 2005 and, on the basis of the latest indicators and survey data, it appears that this process has basically continued, taking into account the usual degree of volatility of quarterly growth rates. Looking ahead, the conditions remain in place for economic growth to continue over the coming quarters. The external environment is favourable, providing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, and accumulated and ongoing gains in earnings and business efficiency. Consumption growth should also strengthen over time, in line with developments in real disposable income, as the labour market situation gradually improves. This outlook for economic activity is also confirmed by available forecasts.","Downside risks to economic growth, relating, in particular, to persistently high and volatile oil prices and concerns about global imbalances, still dominate on the external side.","In relation to price developments, annual HICP inflation was 2.2% in December, down from 2.3% in November and 2.5% in October. Over the short term, annual inflation rates may again increase somewhat, reflecting in particular renewed increases in energy prices and some base effects. Looking further ahead, indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on HICP inflation. Meanwhile, wage dynamics have remained moderate over recent quarters and are assumed to remain so for the time being, reflecting, in particular, global competitive pressure. All in all, currently available information is broadly in line with the scenario embodied in the December 2005 Eurosystem staff projections for HICP inflation over this year and next.","Risks to this outlook for price developments remain on the upside and include further rises in oil prices, a pass-through of oil prices into consumer prices stronger than currently envisaged, additional increases in administered prices and indirect taxes, and – more fundamentally – potential second-round effects on wage and price-setting behaviour. It is therefore crucial that the social partners continue to meet their responsibilities also in the context of a more favourable economic environment.","Turning to the monetary analysis, the annual growth rate of M3 remains robust, even though it moderated further in December. This moderation can be explained in part by an apparent resumption of the unwinding of past portfolio shifts, which exerts a dampening effect on headline M3 growth. However, the trend rate of monetary expansion remains strong, reflecting the stimulative impact of the prevailing low level of interest rates. In particular, growth in the most liquid components of M3 continues to be very robust and the annual growth rate of loans to the private sector has increased further. Mortgage borrowing is particularly buoyant, implying a need to monitor developments in the housing market closely. Overall, strong monetary and credit growth in a context of already ample liquidity in the euro area points to risks to price stability over the medium to longer term.","To sum up, the economic analysis suggests that indirect effects stemming from past oil price rises and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on annual HICP inflation over the coming years. It also indicates that risks to price stability over the medium term remain on the upside. Cross-checking the outcome of our economic analysis with that of our monetary analysis supports the case for vigilance to ensure that the risks to price stability over the medium to longer term do not materialise. It is indeed essential that such risks do not affect medium and long-term inflation expectations, which need to remain firmly anchored at levels consistent with price stability. This is a prerequisite for monetary policy to make an ongoing contribution to sustainable economic growth and job creation","As regards fiscal policy, recent information points to somewhat better than expected outcomes for 2005 in a number of countries and for the euro area as a whole. With the improvements in economic growth, determined fiscal consolidation is now even more important. In particular, countries with excessive deficits must take this opportunity to reduce their fiscal imbalances in a decisive and sustainable manner. This would strongly support the European fiscal framework as established by the Stability and Growth Pact. Delaying consolidation would be both inappropriate in the short term and risky in the longer term. Adjustment efforts should be based on credible, fully specified measures as part of a comprehensive consolidation programme. Any windfall gains from higher than expected growth or other factors should be allocated to speeding up deficit reduction. This would help to prevent a repeat of past experiences, when complacency in good times contributed to persistent budgetary disequilibria.","With respect to structural reforms, the Governing Council discussed a range of issues relating to the euro area services sector. Services-related activities represent an important input for other sectors of the economy and account for a large, growing share of output and employment in the euro area, standing, in both cases, at around 70% in recent years. Given the services sector’s increasingly important role, the need to ensure a fully integrated internal market for services in the European Union is at the forefront of the European policy agenda. Structural reforms aimed at increasing competition in both EU and international services markets would allow firms to benefit from economies of scale and should be expected to increase economic efficiency. This would support both a higher level and stronger growth rate of labour productivity in the services sector, promote a more dynamic economy and create more jobs. Moreover, a higher level of competition in the services market should have a dampening impact on prices and would contribute to the reduction of price stickiness in some areas of the services sector. Overall, opening up the services sector to new entrants would tend to foster more efficient and flexible services markets, facilitate adjustment processes and increase the resilience of the euro area to economic shocks. This would support economic growth and employment in the longer run.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","At today’s meeting, we decided to increase the key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability that we have identified on the basis of both our economic and monetary analyses. The adjustment of interest rates will contribute to ensuring that medium to long-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability, which is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. Interest rates across the entire maturity spectrum still remain at very low levels in both nominal and real terms, and our monetary policy remains accommodative. While this policy stance reflects our current assessment, we will continue to monitor closely all developments with respect to risks to price stability.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","According to Eurostat’s flash estimate, quarter-on-quarter real GDP growth in the euro area was 0.3% in the fourth quarter of 2005. This was considerably lower than the strong 0.6% recorded in the previous quarter. However, looking through the short-term volatility and assessing recent economic indicators and survey information, the evidence suggests that economic activity is improving. Accordingly, we should see stronger growth rates over the short term, as also reflected in various indicator-based estimates.","Looking further ahead, the conditions remain in place for ongoing economic expansion in the euro area. The external environment remains favourable, providing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, corporate balance sheet restructuring and gains in earnings and business efficiency. Consumption growth should also strengthen gradually over time, in line with developments in real disposable income, as the labour market situation gradually improves.","The March ECB staff macroeconomic projections have provided an additional input into our analysis of the prospects for economic activity. These projections foresee average annual real GDP growth in a range between 1.7% and 2.5% in 2006, and between 1.5% and 2.5% in 2007. The results constitute a slight upward revision to the Eurosystem staff projections of December 2005, mainly reflecting a somewhat stronger outlook for private investment over the projection horizon. Most recent forecasts by international organisations and private sector institutions give a broadly similar picture. In the view of the Governing Council, downside risks to this outlook for growth relate mainly to oil price developments and global imbalances.","Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.3% in February 2006, compared with 2.4% in January. In the short run, inflation rates are likely to remain at above 2%, with the precise levels depending strongly on future energy price developments, which have recently been relatively volatile. Beyond the short term, changes in administered prices and indirect taxes are expected to significantly affect inflation in 2006 and 2007, and an upward impact can also be expected from the indirect effects of past oil price increases. At the same time, wage dynamics in the euro area have remained moderate over the recent past; our working assumption is that this will continue to be the case, due not least to strong global competitive pressures, particularly in the manufacturing sector. Moderate wage trends have helped to contain domestic inflationary pressure despite strong oil price increases. Therefore, looking ahead, it is crucial that the social partners continue to meet their responsibilities in this regard, also in the context of a more favourable economic environment.","Further input into our assessment of the outlook for price developments is again provided by the March ECB staff projections. Annual HICP inflation is projected to lie between 1.9% and 2.5% in 2006, and between 1.6% and 2.8% in 2007. Compared with the December 2005 Eurosystem staff projections, these ranges imply a slight upward revision to the profile for HICP inflation over the coming years, reflecting mainly an increase in the assumption for future oil prices, in line with market expectations.","Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger wage and price developments than expected due to second-round effects of past oil price increases.","Turning to the monetary analysis, the Governing Council has again discussed the assessment of monetary developments in depth. The annual growth rate of M3 remains robust, notwithstanding signs of a resumption of the unwinding of past portfolio shifts into monetary assets, which exerts a dampening effect on headline M3 growth. Looking through the short-term effects generated by such portfolio behaviour, the trend rate of monetary expansion remains strong, reflecting the stimulative impact of the low level of interest rates. Moreover, the annual growth rate of credit to the private sector has strengthened further over recent months, with borrowing by households – especially loans for house purchase – and non-financial corporations rising at a marked pace. Overall, strong monetary and credit growth in an environment of ample liquidity in the euro area points to risks to price stability over the medium to longer term.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, and the economic analysis indicates that risks to price stability over the medium term remain on the upside. Given the strength of monetary growth and the ample liquidity situation, cross-checking the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability prevail. An adjustment of interest rates was therefore warranted. By acting in a timely fashion, the Governing Council is helping to keep medium and long-term inflation expectations in line with price stability and thereby making an ongoing contribution to sustainable economic growth and job creation. The Governing Council will continue to monitor closely all developments to ensure that risks to price stability do not materialise.","As regards fiscal policies, while some countries plan to maintain or attain budgetary positions close to balance or in surplus over the horizon of their stability programmes, progress towards sound public finances in the euro area as a whole remains slow. A number of countries continue to report severe imbalances, and in some of them consolidation efforts barely attain the minimum required by the revised Stability and Growth Pact, despite the improving growth outlook. At the same time, the fiscal costs of population ageing cast a shadow over the long-term fiscal outlook for most euro area countries. It is therefore essential that countries pursue a more determined consolidation, introducing concrete and effective measures where needed. These consolidation efforts will more easily succeed if they are embedded in a comprehensive reform programme that adequately prepares for the long-term fiscal challenges. This will enhance the credibility of the revised Pact and create confidence in a sound and growth-friendly fiscal environment.","The broader implications of population ageing also require attention in other fields of economic policy. Comprehensive structural reforms in labour and product markets and the creation of a favourable and competitive environment for firms are vital to support potential growth and raise employment rates as the demographic effects materialise. Completing the EU internal market – including the market for services – should be a key priority. On the labour supply side, tax and benefit system reforms are essential to provide stronger incentives for people to stay in or enter the labour market. On the labour demand side, there is a need to promote wage flexibility and address labour market rigidities. Moreover, better education and training are important for the development of human capital. The forthcoming meeting of the European Council on 23-24 March 2006 will review progress made with the Lisbon strategy, which was relaunched last year. We strongly support the initiatives taken by the European Commission and the European Council to revive this reform process. A full and effective realisation of the necessary reforms is the key to the long-term economic success of the European Union.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have decided to keep the key ECB interest rates unchanged, following the increase of 25 basis points on 2 March 2006. The information which has become available since then confirms our assessment that a further adjustment of our accommodative monetary policy stance was warranted to address upside risks to price stability. It remains essential to ensure that medium to long-term inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. With interest rates across the whole maturity spectrum still at very low levels in both nominal and real terms, and monetary and credit growth remaining strong and liquidity ample, our monetary policy remains accommodative. We will continue to monitor very closely all developments to ensure that risks to price stability over the medium term do not materialise.","Turning first to the economic analysis, recent information has confirmed our assessment of an improved outlook for economic growth in the euro area, following the more subdued developments in late 2005. On the basis of the latest data, survey releases and various indicator-based estimates, it appears that growth is strengthening and broadening in the first half of 2006. Indeed, the conditions remain in place for solid growth over the coming quarters. Activity in the world economy remains strong, providing support for euro area exports. Investment activity is expected to remain solid, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, and accumulated and ongoing gains in earnings and business efficiency. Consumption growth should also strengthen over time, in line with developments in real disposable income, as the labour market situation continues to gradually improve. This outlook for economic activity is also confirmed by available forecasts from international organisations and private sector institutions.","The risks to economic growth appear to be broadly balanced over the shorter term. Further ahead, downside risks still relate to potential increases in oil prices and concerns about global imbalances.","Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.2% in March 2006, compared with 2.3% in February and 2.4% in January. In the short run, inflation rates are likely to remain above 2%, with the precise levels depending largely on developments in the more volatile components of the index. Beyond the short term, changes in administered prices and indirect taxes are expected to significantly affect inflation in 2006 and 2007, and an upward impact may also be expected from the indirect effects of past oil price increases. At the same time, wage dynamics in the euro area have remained moderate over recent quarters and growth in wages is expected to remain contained, partly reflecting strong global competitive pressures, particularly in the manufacturing sector. Over the recent past, moderate wage trends have helped to dampen domestic inflationary pressures; looking ahead, it is crucial that the social partners continue to meet their responsibilities in this regard, also in the context of a more favourable economic environment.","Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a possibly stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger wage and price developments than expected due to second-round effects of past oil price increases.","Turning to the monetary analysis, the latest developments confirm that the stimulative impact of the low level of interest rates remains the dominant factor behind the high trend rate of monetary expansion. Moreover, the annual growth rate of credit to the private sector has continued to increase over recent months, with borrowing by households – especially loans for house purchase – and non-financial corporations rising rapidly. Overall, strong monetary and credit growth in an environment of ample liquidity in the euro area continues to point to upside risks to price stability over the medium to longer term.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, and the economic analysis indicates that the risks to price stability remain on the upside. Given the strength of monetary growth and the ample liquidity situation in a context of improving economic activity, cross-checking the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability over the medium to long term prevail. It is essential that medium-term inflation expectations remain firmly anchored at levels consistent with price stability. Accordingly, the Governing Council will continue to monitor very closely all developments to ensure that risks to price stability do not materialise, thereby making an ongoing contribution to sustainable economic growth and job creation.","As regards fiscal policies, while the budgetary results reported for 2005 are mostly better than anticipated a few months ago, the budget balances planned for 2006 imply no significant progress in fiscal consolidation for the euro area as a whole. Given the economic outlook, a faster pace of deficit reduction is necessary. Delaying fiscal consolidation in times of improving economic activity implies risks for the medium term, as has been observed in the past. Speeding up deficit reduction on the basis of credible and fully specified measures as part of a comprehensive reform programme would help to enhance confidence in the medium-term prospects of the euro area and prevent a repeat of past experiences, when complacency in good times contributed to persistent budgetary disequilibria.","As regards structural reforms, the Governing Council welcomes the call by the European Council, which met in Brussels on 23-24 March 2006, to maintain the momentum of the re-launched Lisbon strategy for growth and employment. As emphasised by the European Council, the focus should now be on ensuring the effective, timely and comprehensive implementation of the measures agreed in the national reform programmes presented by Member States and, if necessary, on strengthening them. These measures are designed to, among other things, enhance the sustainability and quality of public finances, promote flexible labour and product markets, support a favourable business environment, and ensure a fully operational EU internal market, including the markets for energy and services. Applying comprehensive structural reforms is of particular importance for the euro area countries, in order to increase wage and price flexibility and the resilience to shocks, facilitate structural adjustment, raise potential output growth and job creation, and reduce price pressures, thereby facilitating the task of the single monetary policy.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we have decided to leave the key ECB interest rates unchanged. Overall, the information which has become available since our last meeting broadly confirms our earlier assessment of the outlook for price developments and economic activity in the euro area, and that monetary and credit growth remains very dynamic. Against this background, the Governing Council will exercise strong vigilance in order to ensure that risks to price stability over the medium term do not materialise. Such vigilance is particularly warranted in a context of ample liquidity and still very low levels of nominal and real interest rates across the whole maturity spectrum, implying an overall accommodative monetary policy stance. For monetary policy to make an ongoing contribution towards supporting growth and employment in the euro area, inflation expectations must be firmly anchored.","Let me now explain our assessment in more detail, turning first to the economic analysis.","The data that have become available since the start of the year point to a re-acceleration of economic growth in the first quarter of 2006, following the moderation observed in the last quarter of 2005. In addition, the latest indicators and survey information point to continued growth in the second quarter and lend support to the scenario of a gradual broadening in economic activity as embodied in the March 2006 ECB staff projections. Business confidence is particularly buoyant, which, in principle, bodes well for investment, and the recovery in consumption and employment appears to be proceeding, albeit still gradually.","Looking further ahead, the conditions remain in place for continued growth over the coming quarters. Activity in the world economy is expected to remain strong, providing continued support for euro area exports. Investment growth should benefit from an extended period of very favourable financing conditions, balance sheet restructuring, and gains in earnings and business efficiency. Consumption growth should also strengthen over time, in line with developments in real disposable income, as the labour market situation continues to improve. This favourable outlook for economic growth is broadly in line with available forecasts from international organisations and the private sector.","Considering the information available, risks to this scenario appear broadly balanced over the shorter term, although recently oil prices have again demonstrated high volatility and their potential for posing downside risks to growth. This underlines the need for further improvement in the transparency of oil markets and further investment in this sector. Concerns about global imbalances continue to prevail over longer horizons, as do risks relating to protectionism","With regard to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.4% in April 2006, compared with 2.2% in March and 2.3% in February. In the short term, annual inflation rates are likely to remain above 2%, with the month-to-month profile largely dependent on developments in oil prices and the strength of their pass-through to other prices along the production chain. Beyond the short term, changes in administered prices and indirect taxes are expected to affect inflation significantly in 2007 and a further upward impact may also be expected from the indirect effects of past oil price increases. At the same time, wage dynamics in the euro area have remained moderate in recent quarters and wage growth is expected to remain contained, partly reflecting global competitive pressures, particularly in the manufacturing sector. Recent wage moderation has helped to dampen domestic inflationary pressures. Looking ahead, it is equally crucial that the social partners continue to meet their responsibilities in this regard, not least with a view to fostering employment growth.","Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger wage developments than expected at present, possibly due to second-round effects stemming from past oil price increases.","Turning to the monetary analysis, in a context of ample liquidity in the euro area, monetary and credit growth remains very dynamic. In particular, the annual growth rate of loans to the private sector has continued to increase over recent months and has now reached double-digit levels. Credit growth has also become more broadly based across sectors, with borrowing both by households – especially for house purchase – and by non-financial corporations growing more strongly. Monetary growth continues to be driven mainly by the expansion of its most liquid components. Thus the latest developments confirm that the stimulative impact of the low level of interest rates remains the dominant factor behind the current high trend rate of monetary expansion. Overall, further acceleration of monetary and credit growth in this environment continues to point to upside risks to price stability over the medium to longer term. Monetary developments, therefore, require careful monitoring, especially in the light of the strengthening of economic activity and, in particular, of strong asset price dynamics, especially in housing markets.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007 and the economic analysis confirms that the risks to price stability continue to lie on the upside. Some of these risks appear to have increased in view of the renewed strength of oil prices. Given strong money and credit growth in a context of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. It therefore remains crucial to ensure that medium to long-term inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability – a prerequisite for monetary policy to make an ongoing contribution to sustainable economic growth and job creation. Accordingly, particular vigilance is of the essence in order to ensure that risks to price stability do not materialise.","With respect to fiscal policies, there are some signs that the implementation of the Stability and Growth Pact and commitment to the rules have improved since last year’s revision. However, fiscal targets in a number of cases are rather lenient and their attainment is still subject to considerable risks. The Governing Council therefore supports any further reinforcement of fiscal consolidation efforts that also takes full advantage of a more favourable economic environment. Appropriately ambitious fiscal targets as part of a comprehensive structural reform programme would bring deficit and debt ratios down more rapidly. This is decisive in order to secure the sustainability of public finances. Such strategies would also boost confidence in the economic prospects of the euro area.","As regards structural reforms, the Governing Council again stresses the importance of undertaking comprehensive reforms to ensure open, competitive and well-functioning labour and product markets, including the promotion of wage and price flexibility and the fostering of an attractive environment for investment and innovation. The need for such reforms has again been highlighted by recent oil price developments, as they would enhance the resilience of the euro area economy to external shocks. There is a broad and firm consensus that openness and flexibility are beneficial in promoting growth and employment and it is now essential to turn the agreed reform plans into actions and to strengthen them where necessary. By pushing forward with ambitious structural reforms, euro area countries will also lend support to the ongoing economic recovery.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Madrid. I would particularly like to thank Governor Caruana for his kind hospitality and express our special gratitude to the staff of the Banco de España for their excellent organisation.","Let me now report on the outcome of today’s meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","At today’s meeting, we decided to increase the  key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability over the medium term that have been identified through both our economic and monetary analyses. The further withdrawal of monetary accommodation will thus contribute to ensuring that longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. As stressed on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. Overall, also after today’s increase, the key ECB interest rates are still low by historical standards, liquidity is ample and our monetary policy remains accommodative. Given the outlook for price developments and the dynamism of money and credit growth in the euro area, we will continue to monitor closely all developments to ensure price stability over the medium and longer term.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","All the main indicators of economic activity that have recently become available are positive. According to Eurostat’s first estimate, on a quarter-on-quarter basis, real GDP grew by 0.6% in the euro area in the first quarter of 2006, compared with 0.3% in the previous quarter, with domestic demand making a significant contribution. The expected re-acceleration of real GDP growth in the first months of 2006 has thus materialised, confirming our view that economic growth is broadening and becoming more sustained. This assessment is further supported by information on activity in the second quarter – such as various confidence surveys and indicator-based estimates – which continues to be encouraging.","Looking further ahead, the conditions are in place for growth in the euro area to remain close to its trend potential rate, despite the impact of the rise in oil prices. Growth in the economies of the euro area’s main trading partners remains robust, providing support for euro area exports. Strong investment growth is expected to continue, benefiting from favourable financing conditions, corporate balance sheet restructuring, and gains in earnings and business efficiency. Consumption growth should continue to strengthen gradually over time, in line with developments in real disposable income, as the labour market situation gradually improves.","This outlook is also reflected in the June Eurosystem staff macroeconomic projections, which provide additional input into our analysis of the prospects for economic activity. The projections foresee average annual real GDP growth in a range between 1.8% and 2.4% in 2006, and between 1.3% and 2.3% in 2007. The growth projections for 2006 are broadly unchanged from the ECB staff projections of March 2006, while those for 2007 are slightly lower, reflecting mainly the recent rise in oil prices. Most recent forecasts by international organisations and private sector institutions give a broadly similar picture. It is the Governing Council’s view that risks to these projections for economic growth are broadly balanced over the shorter term, while longer-term downside risks relate mainly to potential further oil price rises, global imbalances and protectionism.","Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation increased to 2.5% in May, compared with 2.4% in April and 2.2% in March. Although no detailed information is available as yet, this increase probably stems from energy price developments. In the months to come and in 2007, inflation rates are likely to remain above 2%, the precise levels depending on future energy price developments. While the moderate evolution of labour costs in the euro area is expected to continue in 2007 – also reflecting ongoing global competitive pressures, particularly in the manufacturing sector – indirect effects of past oil price increases and the announced changes in indirect taxes are expected to have a significant upward effect on inflation. Against this background, it is crucial that the social partners continue to meet their responsibilities.","Further input into our assessment of the outlook for price developments is provided by the June Eurosystem staff projections. Annual HICP inflation is projected to lie between 2.1% and 2.5% in 2006, and between 1.6% and 2.8% in 2007. Compared with the March 2006 ECB staff projections, these ranges imply a slight upward shift to the profile for HICP inflation in 2006, largely reflecting the assumption of higher oil prices.","In the view of the Governing Council, risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage developments due to second-round effects of past oil price increases.","Turning to the monetary analysis, the Governing Council again had a thorough discussion of underlying developments in money and credit. In a context of already ample liquidity and very strong monetary and credit growth, the annual growth rate of loans to the private sector has increased further in recent months to reach double-digit levels. Credit growth has also been broadly based across sectors. Borrowing by households – especially for house purchase – and by non-financial corporations has been growing very strongly. At the same time, monetary growth has risen further over the past few months, with the annual growth rate of M3 standing at 8.8% in April.","The rapid rate of monetary growth continues to be driven mainly by the expansion of its most liquid components. Thus, the latest developments confirm that the stimulative impact of the low level of interest rates remains the dominant factor behind the current high trend rate of monetary expansion, which signals inflationary risks over the medium to longer term. The further acceleration of monetary and credit growth in this environment of already ample liquidity points to increased upside risks to price stability at longer horizons. Monetary developments, therefore, require careful monitoring, in particular in the light of strong dynamics in housing markets.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook on the upside. Given the strength of monetary and credit growth and the ample liquidity situation, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability over the medium term prevail. A further adjustment of interest rates was therefore warranted. By acting in a timely fashion, the Governing Council is helping to keep medium and long-term inflation expectations in line with price stability, thereby making an ongoing contribution to sustainable economic growth and job creation. Overall, our monetary policy remains accommodative and the Governing Council will continue to monitor closely all developments to ensure that risks to price stability do not materialise.","With regard to fiscal policies, the forecasts published recently by the Commission point to a broadly unchanged situation in the euro area in 2006 and 2007; deficit ratios are expected to remain at around the 2005 level of 2.4%, while debt ratios, after declining only marginally, are forecast at levels still above 70% of GDP. This is disappointing against the background of the economic outlook. Most countries with an excessive deficit have not corrected their position in a timely manner. Furthermore, there is a risk of consolidation delays in other countries. It is crucial to avoid the mistakes of the past, when many countries failed to consolidate sufficiently in good times. The Governing Council considers that more determined progress is required towards sound public finances in a number of countries, that concrete and credible measures should be implemented swiftly as part of a medium-term-oriented strategy, and that it is vital to consolidate confidence in the revised Stability and Growth Pact by ensuring the sustainability of public finances in the euro area.","In terms of structural reforms, the Governing Council reiterates its call for the implementation of firm measures to ensure open, competitive and well-functioning product and labour markets, so as to foster an attractive environment for investment and innovation and to promote flexibility in wages and prices. There is a broad and firm consensus that such reforms are beneficial in promoting growth and employment and in enhancing the resilience of the euro area economy to external shocks. At the same time, these reforms would further facilitate intra-euro area adjustments by reducing rigidities that contribute, in some economies, to wage developments that lead to high and persistent unit labour cost growth, higher inflationary pressure and losses in competitiveness. Examples of such rigidities are low productivity growth due to a lack of competition in some sectors and an explicit or de facto indexation of nominal wages to prices. All in all, a comprehensive set of reforms is essential to strengthen the foundations for sustained growth in output and employment across the euro area, to underpin the ongoing economic recovery and to further smoothen the functioning of adjustment mechanisms in the euro area, thereby facilitating the conduct of the single monetary policy.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, at today’s meeting we decided to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has confirmed that a further withdrawal of monetary accommodation was warranted to contain upside risks to price stability. Indeed, acting in a timely manner to contain such risks remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. With key ECB interest rates at still low levels in both nominal and real terms, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative. Therefore, if our assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation remains warranted. Against this background, we will exercise strong vigilance so as to ensure that risks to price stability over the medium term do not materialise.","Turning first to the economic analysis, the latest data and survey releases remain positive and, in general, have improved further. On balance, this confirms our assessment that economic growth has both regained momentum and become more broadly based and sustained in the first half of 2006. Looking further ahead, the conditions remain in place for continued economic growth at rates around potential, despite possible volatility in the quarterly figures. Global economic activity remains strong, providing support for euro area exports. Investment is expected to pick up, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring and accumulated and ongoing gains in earnings and business efficiency. Consumption growth in the euro area should also strengthen gradually over time, in line with developments in real disposable income, as employment conditions improve further. This broadly favourable outlook for economic activity is also reflected in the June Eurosystem staff macroeconomic projections and forecasts by international organisations and private sector institutions.","The risks to the outlook for economic growth appear to be balanced over the shorter term, while in the longer term downside risks prevail, relating mainly to potential further oil price rises, a disorderly unwinding of global imbalances and potential pressures for increased protectionism.","With respect to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.5% in June 2006, the same rate as in May and compared with 2.4% in April. During the second half of 2006, and on average in 2007, inflation rates are likely to remain above 2%, the precise levels depending on future energy price developments. This assessment is supported by the Eurosystem staff projections and available public and private sector forecasts. While the moderate evolution of labour costs in the euro area is expected to continue in 2007 – also reflecting ongoing global competitive pressures, particularly in the manufacturing sector – indirect effects of past oil price increases and already announced changes in indirect taxes are expected to exert a significant upward effect on inflation in the course of next year. Against this background, and also in the context of a more favourable environment for economic activity and employment, it is crucial that the social partners continue to meet their responsibilities.","Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently expected, additional increases in administered prices and indirect taxes and, more fundamentally, stronger than expected wage and price developments due to second-round effects of past oil price increases.","Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail is confirmed by the monetary analysis. Money and credit growth have strengthened further over recent quarters, with the latest annual growth rate of M3 increasing to 8.9% in May – the highest annual growth of M3 since the start of Stage Three of EMU. The stimulative impact of the low level of interest rates in the euro area remains an important driving factor behind the high trend rate of monetary expansion. On an annual basis, loans to the private sector as a whole have continued to increase at double-digit rates over recent months, with borrowing both by households and by non-financial corporations rising rapidly. Ongoing strong lending activity to households continues to be explained, in particular, by borrowing for house purchases, which has stood at an annual rate of above 12% in recent months. The dynamic growth of money and credit, in an environment of already ample liquidity, points to increased upside risks to price stability at medium to longer horizons. Monetary developments, therefore, require enhanced monitoring, particularly in the light of strong dynamics in housing markets.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook continuing to be on the upside. Given the dynamism of monetary growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term. It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. Accordingly, the Governing Council will exercise strong vigilance so as to ensure that risks to price stability do not materialise, thereby making an ongoing contribution to sustainable economic growth and job creation.","In terms of fiscal policy, the overall pace of consolidation is disappointing against the background of the favourable outlook for growth. Consolidation targets continue to be at risk, notably in a number of countries with an excessive deficit. The Governing Council therefore reiterates its position that it is crucial to avoid the mistakes of the past. It also wishes to express its broad agreement with the main fiscal challenges as generally identified by the European Commission. These concern, in particular, the need for a rigorous implementation of the revised Stability and Growth Pact with a view to speeding up fiscal consolidation and improving the outlook for fiscal sustainability. This needs to be underpinned by medium term-oriented structural reform strategies and appropriate national fiscal institutions and procedures. Finally, reliable compilation and timely reporting of government finance statistics remain essential for the European fiscal framework. Meeting these challenges will support confidence in the soundness of public finances and in economic prospects in Europe.","As regards structural reforms, enhancing the growth potential of the euro area, increasing job opportunities and strengthening the euro area’s ability to cope with the challenges of globalisation are among the most demanding economic policy issues of our time. In order to translate the opportunities brought about by globalisation – in terms of higher living standards – into achievements, the euro area would greatly benefit from more flexible labour and product markets. It would also gain from a more favourable business environment and a fully fledged internal market – including in the services sector – that foster innovation, investment and the creation of new firms. Indeed, implementing the necessary reforms in a decisive manner would both help to reap the benefits that globalisation and the single market offer our citizens and raise the production capacity of our economy.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to this press conference to report on the outcome of today’s meeting of the Governing Council. The meeting was also attended by Commissioner Almunia.","At today’s meeting, we decided to increase the key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. It will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. As stressed on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. Also after today’s increase, the key ECB interest rates remain low in both real and nominal terms, money and credit growth remain strong, and liquidity in the euro area is ample by all plausible measures. Our monetary policy therefore continues to be accommodative. If our assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation will be warranted. Against this background, we will continue to monitor very closely all developments so as to ensure price stability over the medium and longer term.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The main indicators of economic activity that have become available since the July press conference have tended to confirm our baseline scenario for economic growth in the euro area. Eurostat’s second release verified that, in the first quarter of 2006, real GDP grew by 0.6% on a quarter-on-quarter basis. Economic activity is also becoming more broadly based on domestic demand. Moreover, the currently available information on economic activity in the second quarter – such as various confidence surveys and monthly indicators – supports the view that economic growth has continued at a sustained pace. The survey information so far available for the third quarter is also in line with our baseline scenario.","Looking further ahead, the conditions are in place for real GDP in the euro area to grow at around its potential rate, as projected by Eurosystem staff in June. Growth in the economies of the euro area’s main trading partners is providing ongoing support for euro area exports. Investment growth is expected to continue benefiting from favourable financing conditions, corporate balance sheet restructuring, and improvements in earnings and business efficiency. Consumption growth should continue to strengthen gradually over time, in line with developments in employment growth and hence real disposable income. This generally favourable outlook for economic activity in the euro area is also reflected in forecasts by international organisations and private sector institutions.","Risks to the outlook for economic growth are broadly balanced over the shorter term, although recent geopolitical tensions and their impact on markets are a timely reminder of the uncertainties that we face. Medium to longer-term risks lie on the downside and relate in particular to the potential for further oil price rises, a disorderly unwinding of global imbalances and protectionist pressures, especially after the suspension of the Doha Round of trade talks.","Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.5% in July 2006, unchanged from June and May. In the second half of 2006 and on average in 2007, inflation rates are likely to remain above 2%, the precise levels depending very much on future energy price developments. While the moderate evolution of labour costs in the euro area is expected to continue in 2007 – also reflecting ongoing global competitive pressures, particularly in the manufacturing sector – indirect effects of past oil price increases and already announced changes in indirect taxes are expected to exert a significant upward effect on inflation in the course of next year. Against this background, it is crucial that the social partners continue to meet their responsibilities.","Risks to the outlook for price developments have augmented and include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage and price developments owing to second-round effects of past oil price increases at a time of gradually improving labour markets.","Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail is confirmed by the monetary analysis. While the data for June 2006 show some moderation in the annual growth rate of M3, these latest developments remain consistent with a persistent upward trend in the underlying rate of monetary expansion since mid-2004. The stimulative impact of the low level of interest rates in the euro area has been an important factor behind the tendency for money and credit growth to strengthen over recent quarters.","Looking at the counterparts of M3, the expansion of credit to the private sector remains the main driver of monetary dynamics. On an annual basis, loans to the private sector as a whole have continued to increase at double-digit rates over recent months, with borrowing both by households and by non-financial corporations rising rapidly. Ongoing strong lending to households continues to be explained, in particular, by borrowing for house purchases. The dynamic growth of money and credit, in an environment of already ample liquidity, points to increased upside risks to price stability at medium to longer horizons. Monetary developments therefore require careful monitoring, particularly in the light of strong dynamics in housing markets.","To sum up, annual inflation rates are expected to remain elevated, at above 2% on average, in 2006 and 2007, with risks to this outlook on the upside. Given strong monetary and credit growth in a context of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability prevail over the medium term. A further adjustment of interest rates was therefore warranted. By acting today in a timely fashion, the Governing Council is helping to anchor medium and long-term inflation expectations at levels consistent with price stability, thereby making an ongoing contribution to sustainable economic growth and job creation. Looking ahead, given that our monetary policy continues to be accommodative, a progressive withdrawal of monetary accommodation will be warranted if our assumptions and baseline scenario are confirmed. The Governing Council will continue to monitor very closely all developments so as to ensure that risks to price stability do not materialise.","Concerning fiscal policies, given the outlook for economic growth, it is of crucial importance that euro area governments avoid pro-cyclical policies and step up the pace of fiscal consolidation. As budgetary targets for the current year are not particularly ambitious, a rigorous implementation of plans on the expenditure side is especially warranted, and any additional windfall revenues are best used for deficit reduction. Beyond the implementation of such prudent policies in the remainder of this year, the medium-term focus of fiscal policies should be on correcting the underlying sources of imbalances in public finances. Euro area governments, many of which are now finalising their budget plans for 2007, should take full advantage of the economic environment to bring forward the structural adjustment necessary for the durable correction of excessive deficits, so as to reach their medium-term budgetary objectives at an early stage and thereby prepare public finances for the acute demographic challenges they must cope with.","As regards structural reforms, it is essential, for Europe’s future, to ensure that it has a fully operational Internal Market, allowing a free flow of labour and capital and free trade in goods and services. Removing the remaining barriers within the EU will be a powerful means to promote the efficient allocation of factors of production as well as deeper economic and financial integration. This in turn would allow the EU to realise its substantial potential for stronger output and employment growth and to increase its resilience to shocks. Exploiting the opportunities of the Single Market will help to safeguard the prosperity of the citizens of Europe. For those Member States which have fulfilled the convergence criteria laid down by the Treaty and participate in the euro area, the considerable benefits of the Internal Market are further enhanced by the single currency, which offers them a credible framework for monetary policy and price stability in an environment characterised by the absence of exchange rate uncertainty within the euro area, low long-term interest rates, price and cost transparency, reduced transaction and information costs and stronger insurance against economic and financial instability.","In this respect, the further enlargement of the euro area on 1 January 2007 with the entry of Slovenia will be a new historical landmark. In order to fully reap the advantages of the euro and to allow adjustment mechanisms to operate efficiently within the enlarged currency area, it will be necessary to fully integrate Slovenia into Economic and Monetary Union, which calls for all remaining barriers to be removed, including those related to labour mobility. Indeed, open, competitive and flexible markets are of particular importance for the functioning of the euro area economy and the smooth conduct of the single monetary policy. For its part, the Governing Council has undertaken all the necessary preparations to make Banka Slovenije an integral part of the Eurosystem.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, at today’s meeting we decided to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates earlier this month. It has also confirmed that strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained. With key ECB interest rates at still low levels in both nominal and real terms, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative. If our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation will remain warranted. Indeed, acting in a timely manner to contain risks to price stability remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability. Such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area.","Turning first to the economic analysis, all the main indicators in the euro area that have recently become available for the first half of the year show a significant improvement in underlying economic activity and indicate that economic growth was stronger than previously projected by official and private forecasters. According to Eurostat’s flash estimate, on a quarter-on-quarter basis, real GDP grew by 0.9% in the euro area in the second quarter of 2006, significantly above the 0.6% growth rate recorded in the previous quarter. In interpreting recent GDP data, due account needs to be taken of the degree of volatility of quarterly growth rates, but they generally confirm our view that economic growth is broadening and becoming more sustained. The information on activity in the third quarter – coming from various confidence surveys and indicator-based estimates – continues to be favourable and supports the assessment of real GDP growing at rates around potential. Looking forward, the conditions remain in place for the euro area economy to continue growing at around the potential rate. Global economic activity remains robust, providing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions improve further.","This outlook is also reflected in the new ECB staff macroeconomic projections, which for the first time include Slovenia as part of the euro area projections for 2007. The projections foresee average annual real GDP growth in a range between 2.2% and 2.8% in 2006, and between 1.6% and 2.6% in 2007. In comparison with the June Eurosystem staff projections, the ranges projected for real GDP growth in 2006 and 2007 have been revised upwards, mainly reflecting the stronger growth recorded in the first half of this year, along with continued positive signals from a number of other indicators.","It is the Governing Council’s view that risks to these projections for economic growth are broadly balanced over the shorter term. Over the longer term, uncertainty has augmented and downside risks relate mainly to potential further oil price rises, global imbalances and protectionist pressures, especially after the suspension of the Doha round of trade talks.","With respect to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 2.3% in August 2006, compared with 2.4% in the previous month. During the second half of 2006, and on average also in 2007, inflation rates are likely to remain elevated at above 2%, with the precise levels depending mainly on future energy price developments. While in our main scenario the moderate evolution of labour costs in the euro area is expected to continue in the remainder of 2006 and in 2007 – partly reflecting ongoing global competitive pressures, particularly in the manufacturing sector – lagged indirect effects of past oil price increases and already announced increases in indirect taxes are expected to exert a significant upward effect on inflation in the course of next year.","In the new ECB staff projections, annual HICP inflation is projected to lie between 2.3% and 2.5% in 2006, and between 1.9% and 2.9% in 2007. Compared with the June 2006 Eurosystem staff projections, the range for 2006 is within the upper part of the previous range, while that for 2007 has been shifted slightly upwards, largely reflecting the assumption of higher oil prices.","In the view of the Governing Council, risks to this outlook for price developments remain on the upside. They include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage developments.","Against this background, it is crucial that the social partners continue to meet their responsibilities, also in the context of a more favourable environment for economic activity and employment.","Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail continues to be confirmed by the monetary analysis. The rates of monetary and credit expansion remain rapid, reflecting the still low level of interest rates in the euro area. In particular, loans to the private sector continue to grow at double-digit rates on an annual basis, with this rapid growth remaining broadly based across the household and corporate sectors. The moderation of annual M3 growth observed in the past two months – to 8.5% in June and 7.8% in July – may possibly reflect the impact of previous increases in interest rates. However, it also needs to be viewed against the high growth rate witnessed in May, which represented one of the highest annual rates of M3 growth seen since the introduction of the euro. More generally, recent monetary developments should be assessed with the appropriate medium-term perspective, and thus against the background of the persistent upward trend in the underlying rate of monetary expansion observed since mid-2004. On this basis, liquidity in the euro area remains ample by all reasonable measures. Continued strong monetary and credit growth in the context of already ample liquidity points to upside risks to price stability over the medium to longer term. Monetary developments therefore require careful monitoring, especially against the background of improved economic conditions and strong property market developments in many parts of the euro area.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook continuing to be clearly on the upside. Given the ongoing dynamism of monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term. It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. Accordingly, strong vigilance is warranted in order to ensure that risks to price stability are contained. If our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation remains warranted. Acting in a timely manner will make an ongoing contribution to sustainable economic growth and job creation.","As regards fiscal policy, in several Member States public finances appear to be on track to meet or even exceed this year’s targets as the favourable economic situation, revenue windfalls and effective consolidation measures exert a positive influence on fiscal balances. However, in other countries, the current fiscal outlook suggests a shortfall in terms of the required structural improvement in public finances. This is worrying in view of the objectives and commitments agreed under the revised Stability and Growth Pact. It is therefore essential that 2006 budgets are executed strictly during the remainder of this year, and that budget plans for 2007 and beyond are sufficiently ambitious. All countries should take advantage of the current economic recovery to consolidate fiscal balances. Especially countries in excessive deficit procedure and with a high debt-to-GDP ratio should use the current economic recovery to bring the public deficit ratio to below 3% within the agreed deadline, and more ambitious fiscal consolidation is essential to achieve the medium-term objectives. It is also crucial that comprehensive reform programmes strengthen economic incentives and enhance the sustainability of social security systems. This is the best contribution that fiscal policies can make towards building confidence in the outlook for growth and stability in the euro area and in the revised Stability and Growth Pact.","As regards structural reforms, the Governing Council stresses the need to raise the potential growth rate of the euro area, to foster incentives to work and to strengthen the euro area’s capacity to absorb shocks. Comprehensive reform measures to ensure a fully operational internal market, a higher degree of wage and price flexibility, and a more favourable business environment would offer new opportunities for firms and workers and promote investment, innovation and job creation. Such structural reforms would not only help to underpin the momentum of the ongoing economic recovery, but would also safeguard the standard of living of euro area citizens in the longer run.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Paris. I would particularly like to thank Governor Noyer for his kind hospitality and express our special gratitude to the staff of the Banque de France for the excellent organisation of the meeting of the Governing Council.","Let me now report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","At today’s meeting, we decided to increase the key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. Today’s decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Also after today’s increase, the key ECB interest rates remain at low levels, money and credit growth are strong, and liquidity in the euro area is ample by all plausible measures. Our monetary policy therefore continues to be accommodative. If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation. The Governing Council will therefore continue to monitor very closely all developments so as to ensure price stability over the medium and longer term.","Turning first to the economic analysis, the quarter-on-quarter growth rate of real GDP in the euro area for the second quarter of 2006 was confirmed at 0.9%. Moreover, since our previous meeting on 31 August, Eurostat has revised upwards the growth data for the two preceding quarters, thereby confirming that a significant acceleration in economic expansion has taken place over the past few quarters. On the basis of the revised data, economic activity has been growing at a quarterly rate of 0.7% on average over the last four quarters, the unemployment rate has been on a falling trend, employment growth has recovered and employment expectations overall have remained favourable. All in all, the economic recovery now appears somewhat stronger than on the basis of earlier data. It has become more broadly based and is mainly supported by domestic demand. The available information on activity in the third quarter – coming from various confidence surveys and indicator-based estimates – continues to support the assessment that economic activity will grow robustly while possibly moderating somewhat.","Looking ahead to the remainder of 2006 and 2007, the conditions remain in place for the euro area economy to grow at solid rates around potential, with some volatility in the quarterly growth rates likely to emerge around the turn of the year. Global economic activity has become more balanced across regions and is still robust, thereby providing ongoing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve.","Risks to the outlook for economic growth are broadly balanced over the shorter term, although the recent fall in oil prices – if it were to prove lasting – has the potential to lead to somewhat stronger demand and output growth than embodied in our baseline scenario for activity in the coming quarters. Over the longer term, risks to growth lie on balance on the downside, and relate mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation fell to 1.8% in September 2006, from 2.3% in August. Although no detailed breakdown is available as yet, this relatively sharp decline seems to be the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices. While the outlook for energy prices is uncertain, on the basis of current energy prices and the higher quotations on futures markets, overall inflation rates are likely to increase again towards the end of the year and in early 2007. As a consequence, we expect a considerable degree of short-term volatility in the annual HICP inflation rate, while the overall inflation rate will remain elevated at levels above 2% on average in 2006 and is likely to remain so in 2007.","In addition, risks to the outlook for price developments remain clearly on the upside. They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far. Furthermore, renewed increases in oil prices cannot be excluded. More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the positive signs from labour markets, stronger than currently expected wage developments pose substantial upward risks to price stability. Against this background, it is crucial that the social partners continue to meet their responsibilities, in particular in the context of a more favourable environment for economic activity and employment.","The monetary analysis continues to point to upside risks to price stability at medium to longer horizons. Annual M3 growth rose again to 8.2% in August and, more generally, the rate of monetary and credit expansion remains rapid, reflecting the still low level of interest rates in the euro area. In particular, loans to the private sector continue to grow at double-digit rates on an annual basis, remaining broadly based across the household and corporate sectors. Taking the appropriate medium-term perspective, these developments remain consistent with the persistent upward trend in the underlying rate of monetary expansion, identified by the ECB’s monetary analysis since mid-2004. Moreover, following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Continued strong monetary and credit growth in an environment of still ample liquidity, as a result of the persistently high rate of monetary expansion over the past few years, point to upside risks to price stability over the medium to longer term. Monetary developments therefore require careful monitoring, particularly against the background of improved economic conditions and strong property market developments in many parts of the euro area.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook remaining clearly on the upside. Given the ongoing dynamism of monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term. It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation. The Governing Council will therefore continue to monitor very closely all developments so as to ensure price stability over the medium and longer term.","As regards fiscal policy, euro area countries are now in the process of finalising their 2007 budgets and preparing their next stability programme updates. In the current favourable economic environment, it is essential that adequate headway be made towards sound public finances, implying that budget targets for 2007 should generally be more ambitious than in previous programmes. Countries in excessive deficit need to remain fully committed to bringing their deficits to below 3% within the agreed deadline via adequate and credible structural consolidation. Other countries need to make clear progress towards their medium-term objectives in line with the requirements of the Stability and Growth Pact. In all cases, any revenue windfalls from faster than expected growth should be used to speed up deficit reduction or to increase surpluses. Pro-cyclical policies should be avoided and expenditure restraint is of particular importance, also given the high spending ratios and taxes as compared with many other industrialised countries. Experience has shown that expenditure reform is key to successful consolidation, and consolidation is essential for reducing overall public debt and for making public finances less vulnerable to the impact of ageing populations.","Fiscal consolidation is likely to be most successful when coupled with comprehensive structural reforms. These are urgently needed to help to cushion the unfavourable economic effects of the projected demographic change in the euro area. The decline in the working age population will place further pressure on pension and health care systems, and may have wide-ranging economic consequences. In order to support the potential economic growth of the euro area, to foster macroeconomic flexibility and dynamism, and to safeguard the future standard of living of our citizens, labour and product market reforms are urgently needed. This will increase labour market participation and employment and strengthen innovation and the other forces driving productivity and economic growth. The ECB will play its part by continuing to maintain price stability over the medium term.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Mr Heinäluoma, President of the Ecofin Council, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates in October. It has also confirmed that strong vigilance remains of the essence so as to ensure that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. With the key ECB interest rates at still low levels, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative. If our assumptions and baseline scenario continue to be confirmed, it will remain warranted to further withdraw monetary accommodation. Indeed, acting in a firm and timely manner remains essential to ensuring price stability over the medium term. As emphasised on previous occasions, this is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area.","Allow me to explain our assessment in greater detail, turning first to the economic analysis.","Eurostat’s second estimate confirmed that real GDP growth in the euro area was 0.9% quarter on quarter in the second quarter of 2006, after 0.8% in the first quarter. Looking through the usual volatility of quarterly growth rates, economic activity has been growing at an average quarter-on-quarter rate of 0.7% over the four quarters to mid-2006, and thus faster than generally expected a year ago. On the basis of various monthly indicators of economic activity and confidence surveys, available up to October, the momentum of the economic expansion is expected to have continued in the second half of this year. In addition, the unemployment rate has been declining, employment growth has recovered and employment expectations remain favourable. All in all, the assessment of a more broadly based and more self-sustaining recovery continues to be confirmed by the incoming data, notwithstanding some possibility of a somewhat slower pace of quarter-on-quarter real GDP growth in the second half of this year than in the first.","Looking further ahead, the conditions remain in place for the euro area economy to grow at solid rates around potential, although some volatility in the quarterly growth rates is likely to emerge around the turn of the year, mainly reflecting the impact of an increase in indirect taxes in a large euro area country in January 2007. Global economic activity has become more balanced across regions and remains robust, thereby providing ongoing support for euro area exports. Investment is expected to remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption growth in the euro area should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve.","Risks to the outlook for economic growth are broadly balanced over the shorter term, taking into account, in particular, the recent slowing down in the US economy on the one hand and the recent fall in oil prices on the other. The oil price decline – if it were to prove lasting – has the potential to lead to somewhat stronger demand and output growth than embodied in our current baseline scenario for activity in the coming quarters. Over the longer term, risks to growth continue to lie on the downside, relating mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate annual HICP inflation was 1.6% in October, after having declined to 1.7% in September from 2.3% in August. The recent decline in inflation is the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices. While the outlook for energy prices remains uncertain, on the basis of current energy prices and the higher quotations on futures markets, inflation rates are likely to increase again in the next few months and early 2007. As a consequence, we expect a high degree of short-term volatility in the annual HICP inflation rate. Looking through this volatility, however, HICP inflation will remain elevated at a level above 2% on average in 2006 and is likely to remain so in 2007.","Risks to the outlook for price stability remain clearly on the upside. They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far. Furthermore, renewed increases in oil prices cannot be excluded. More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the ongoing improvement in labour markets, stronger than currently expected wage developments pose substantial upward risks to price stability. Against this background, it is crucial that the social partners continue to meet their responsibilities, particularly in the context of a more favourable environment for economic activity and employment.","The monetary analysis continues to point to upside risks to price stability at medium to longer horizons. Annual M3 growth rose again to 8.5% in September, after having increased to 8.2% in August. Although the annual growth rate of M1 has moderated somewhat in recent months, reflecting shifts into instruments with more market-related returns in a context of rising interest rates, this has been more than compensated by the stronger expansion of the other components of M3.","More generally, the rate of monetary and credit expansion remains rapid, reflecting the still low level of interest rates in the euro area and the strengthening of economic activity. In particular, loans to the private sector continue to grow at double-digit rates on an annual basis, their dynamism remaining broadly based across the household and corporate sectors. While the growth of household borrowing shows some signs of stabilisation, albeit at very high rates, the growth of borrowing by non-financial corporations continues to trend upwards and has now reached rates of over 12% on an annual basis, the highest seen since the early 1990s. Thus, when the counterparts of M3 are considered, the main driver of strong monetary growth remains the expansion of credit to the private sector.","Taking the appropriate medium-term perspective, the latest developments are consistent with a continuation of the persistent upward trend in the underlying rate of monetary expansion, identified by the ECB’s monetary analysis since mid-2004. Furthermore, following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of improved economic conditions and strong property market developments in many parts of the euro area.","To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook remaining clearly on the upside. Given the ongoing marked dynamism of monetary growth in an environment of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. If our assumptions and baseline scenario continue to be confirmed, it will remain warranted to further withdraw monetary accommodation. Indeed, acting in a firm and timely manner remains essential to ensuring price stability over the medium term. The Governing Council will therefore exercise strong vigilance.","As regards fiscal policy, euro area countries have recently notified their deficit and debt figures for 2005 to the European Commission, and most have reported on developments in 2006 and budget plans for 2007. While, on average, this information points to further, albeit slow improvements in budget balances, this should not give rise to complacency. It is important that commitments under the revised Stability and Growth Pact are met in all euro area countries. It is essential that budgetary consolidation is strengthened in the current economic upswing and that pro-cyclical policies are avoided. This would boost confidence among market participants and the public. To that effect any revenue windfalls from faster than expected growth should be pre-committed and used in full to speed up deficit reduction or to increase surpluses in good times. The prospects for attaining sound budgetary positions improve when consolidation plans are based on credible commitments to reduce expenditure ratios and better expenditure control mechanisms. Finally, let me reiterate previous calls for high quality statistical data and sound statistical reporting, which are key for the prevention and correction of budgetary imbalances.","As regards structural reforms, the Governing Council stressed the importance of creating a fully operational Single Market and flexible product and labour markets in order to enhance the adjustment capacity of the euro area economy and its resilience to external shocks. Liberalising product markets to allow more competition would raise incentives for firms to invest and innovate, thereby raising productivity growth. Removing labour market rigidities and distortions in wage and price formation are key conditions for promoting more homogeneous cost and price competitiveness trends among euro area countries and for generating sustained output growth and job creation. In particular, wage increases should be guided, in general, by the trend in labour productivity growth, while taking full account of the present level of unit labour costs, in order to preserve or restore price competitiveness. Moreover, it is desirable that wage settlements move away from automatic, backward-looking indexation mechanisms. The successful implementation of reforms aimed at removing rigidities and inefficiencies in euro area countries would raise potential growth and employment prospects.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","At today’s meeting, we decided to increase the key ECB interest rates by 25 basis points. This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. Today’s decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. After today’s increase, our monetary policy continues to be accommodative, with the key ECB interest rates remaining at low levels, money and credit growth strong, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise.","Turning first to the economic analysis, according to Eurostat’s first estimate, the quarter-on-quarter growth rate of real GDP in the euro area for the third quarter of 2006 was 0.5%. The data thus confirm our assessment that economic activity continued to expand robustly, while moderating from the very strong rates seen in the first half of the year. Domestic demand remained the main driver of economic growth in the third quarter, confirming the anticipated broadening of the recovery and pointing to the increasingly self-sustaining nature of economic expansion in the euro area. The information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued in the fourth quarter of this year.","Looking ahead, the conditions remain in place for the euro area economy to grow at solid rates around potential. While some volatility in the quarterly growth rates is likely to emerge around the turn of the year, associated with the impact of changes in indirect taxes in a large euro area country, the medium-term outlook for economic activity remains favourable. As regards the external environment, economic growth has become more balanced across regions. Helped in part by lower oil prices, global growth is robust, thereby providing support for euro area exports. Domestic demand in the euro area is expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve.","This outlook is also reflected in the new Eurosystem staff macroeconomic projections. The projections foresee average annual real GDP growth in a range between 2.5% and 2.9% in 2006, between 1.7% and 2.7% in 2007 and between 1.8% and 2.8% in 2008. Most recent forecasts by international organisations give a broadly similar picture. In comparison with the September ECB staff projections, the ranges projected for real GDP growth in 2006 and 2007 have been revised upwards, largely reflecting the assumption of lower energy prices and their impact on real disposable income.","In the Governing Council’s view, the risks surrounding this broadly favourable outlook for economic growth over the projection horizon lie on the downside. The main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and concerns about possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation rose to 1.8% in November 2006, from 1.6% in October and 1.7% in September. While no detailed breakdown of the November HICP data is available as of yet, the lower annual HICP inflation rates recorded in the two previous months reflected mainly the significant declines in crude oil prices from August onwards, as well as base effects. While the outlook for energy prices remains uncertain, on the basis of the oil prices currently implied by the futures market overall inflation rates are likely to increase again in early 2007 and then hover around 2% in the course of that year, also reflecting the impact of higher indirect taxes.","The December Eurosystem staff projections see annual HICP inflation at between 2.1% and 2.3% in 2006, between 1.5% and 2.5% in 2007 and between 1.3% and 2.5% in 2008. Most recent forecasts by international organisations give a broadly similar picture. Compared with the September 2006 ECB staff projections, the ranges for 2006 and 2007 are somewhat lower, largely reflecting the assumption of lower energy prices. In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including market expectations for short and long-term interest rates as well as for oil and non-energy commodity prices.","In the Governing Council’s view, the outlook for price developments remains subject to upside risks, stemming in particular from a pass-through of previous oil price increases which is stronger than assumed in the baseline scenario, the possibility of renewed oil price increases and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the positive signs from labour markets, wage developments could be stronger than currently expected. Therefore, it is crucial that the social partners continue to meet their responsibilities. Wage agreements should take into account productivity developments in connection with the still high level of unemployment and positions in price competitiveness. It is also important that wage settlements move away from automatic, backward-looking indexation mechanisms.","Turning to the monetary analysis, annual M3 growth was unchanged at 8.5% in October, remaining close to the highest rates observed since the introduction of the euro, which points to inflationary risks at medium to longer horizons. Increasing interest rates have exerted some influence over monetary developments in recent months, although as yet mainly by triggering shifts among the components of M3 rather than constraining the expansion of M3 itself. In particular, the annual growth rate of M1 has moderated somewhat, reflecting shifts from overnight deposits into other components of M3 which offer more market-related returns.","More generally, the rate of monetary and credit expansion remains rapid, reflecting the low level of interest rates and the strengthening of economic activity in the euro area. In particular, loans to the private sector continue to grow at double-digit rates on an annual basis, their dynamism remaining broadly based across the household and corporate sectors. In the context of rising interest rates, the growth of household borrowing has shown signs of stabilisation in recent months, albeit at very high growth rates. By contrast, the growth of borrowing by non-financial corporations continues to trend upwards and has now reached rates of over 12% on an annual basis, the highest seen since the early 1990s. Thus, when the counterparts of M3 are considered, the main driver of strong monetary growth remains the expansion of credit to the private sector.","Taking a medium to longer-term perspective, the latest developments are consistent with a continuation of the persistent upward trend in the underlying rate of monetary expansion, identified by the ECB’s monetary analysis since mid-2004. Furthermore, following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of improved economic conditions and continued strong property market developments in many parts of the euro area.","To sum up, annual inflation rates are projected to hover around 2% in the coming two years, with risks to this outlook remaining on the upside. In addition, given the ongoing marked dynamism of monetary and credit growth in an environment of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to long term. It is essential that inflation expectations remain firmly anchored at levels consistent with price stability. Indeed, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will therefore monitor very closely all developments so that risks to price stability over the medium term do not materialise.","As regards fiscal policy, the European Commission’s autumn forecasts suggest that deficits will fall below 3% of GDP in most euro area countries by 2007. This is welcome. However, the projected improvements in fiscal balances can only partly be attributed to substantial progress in structural consolidation, as higher economic growth and revenue windfalls are playing an important role. Moreover, in a number of countries with fiscal imbalances, adjustment efforts still fall short of what is needed to meet their respective medium-term objectives in a timely manner and thus fulfil the requirements of the revised Stability and Growth Pact. This is of major concern. It is therefore crucial that forthcoming updates of the stability programmes not only envisage significant progress towards the correction of excessive deficits in a sustainable manner but also make sufficient headway towards safe budgetary positions in the countries concerned. For all countries it is paramount that pro-cyclical policies be avoided in the current economic upswing. More progress is also needed with fiscal structural reform as part of a comprehensive medium-term strategy to improve economic incentives and the soundness of social security systems. This would be a crucial contribution of fiscal policies to economic growth and fiscal sustainability as well as to confidence in the revised Stability and Growth Pact.","As regards structural reforms, the Governing Council welcomed the 2006 progress reports submitted by EU Member States on their 2005-08 national reform programmes, in line with the renewed Lisbon Strategy. Although it is encouraging that many concrete reform steps are being taken or are planned, there is still a considerable way to go to make the euro area a more dynamic economy, which is crucial to meeting the challenges of globalisation, population ageing and rapid technological change. Reform measures should foster more integrated, flexible and competitive economies in the euro area, thus allowing more efficient adjustment processes and a stronger resilience to shocks. These are essential conditions for the substantial benefits of the single currency to be better exploited and for the economic performance to improve in both the euro area as a whole and in each member state.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our first press conference in 2007. Let me therefore wish you all a very Happy New Year. I would also like to take this opportunity to welcome Slovenia as the thirteenth country to adopt the euro as its currency. Accordingly, Mr Gaspari, the Governor of Banka Slovenije, became a member of the Governing Council on 1 January 2007.","Let me now report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates in December. It has also confirmed that very close monitoring of all developments is of the essence so that risks to price stability over the medium term do not materialise. This will permit medium to longer-term inflation expectations in the euro area to remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Our monetary policy continues to be accommodative, with the key ECB interest rates remaining at low levels, money and credit growth very strong, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.","Turning first to the economic analysis, quarter-on-quarter real GDP growth in the euro area was 0.5% in the third quarter of 2006, after very strong growth in the first half of last year. Domestic demand remained the main driver of economic growth, thus confirming the anticipated broadening of the recovery and pointing to the increasingly self-sustaining nature of economic expansion in the euro area. Drawing on the latest information, the evidence from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued and that the situation in labour markets has improved further. While some volatility in the quarter-on-quarter growth rates around the turn of the year may be observed – associated with the impact of changes in indirect taxes in a large euro area country – the information available continues to be in line with our baseline scenario.","Looking ahead, the medium-term outlook for economic activity continues to be favourable and the conditions remain for the euro area economy to grow solidly, at rates around potential. As for the external environment, global economic growth has become more balanced across regions, with some deceleration in the US and resilient growth elsewhere. Overall, global growth should remain robust and therefore continue to provide support for euro area exports. Domestic demand in the euro area is expected to maintain its momentum. Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve.","In the Governing Council’s view, the risks surrounding this broadly favourable outlook for economic growth over the coming years lie mainly on the downside. The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments due to global imbalances.","With regard to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.9% in December 2006, unchanged from the previous month. On account of their volatility over recent months, and owing to base effects, energy prices will continue to play an important role in determining the profile of annual rates of HICP inflation in early 2007, together with the impact of higher indirect taxes. Looking further ahead, annual inflation rates are projected to hover around 2% over this year and next.","In the Governing Council’s view, the outlook for price developments remains subject to upside risks, stemming in particular from a stronger than anticipated pass-through of previous oil price increases, increases in administered prices and indirect taxes beyond those announced thus far, and the possibility of renewed oil price increases. More fundamentally, given the favourable momentum of real GDP growth over the past few quarters and positive labour market developments, wage dynamics could be stronger than currently expected. It is therefore crucial that social partners continue to meet their responsibilities. In this context, wage agreements should take into account productivity developments, while recognising the still high level of unemployment and price competitiveness positions. As stated on previous occasions, it is also important that wage settlements move away from automatic, backward-looking indexation mechanisms.","Turning to the monetary analysis, annual M3 growth rose to 9.3% in November. This represents its highest annual rate of growth since the introduction of the euro and, indeed, its strongest aggregate growth in the euro area group of countries since 1990. While the significance of monthly figures should not be overstated, as they may also be influenced by temporary factors, the series of strong monetary data over the past couple of months underscore the continued very dynamic underlying rate of broad money expansion in the euro area. Rising short-term interest rates, in combination with low long-term interest rates, have exerted only a limited influence over monetary developments in recent months. This has mainly taken the form of shifts among the components of M3 rather than constraining the overall expansion of M3 itself. In particular, over recent months the annual growth rate of M1 has moderated somewhat, reflecting shifts from overnight deposits into other components of M3 that offer more market-related returns.","All in all, the rate of monetary and credit expansion remains rapid, reflecting the low level of interest rates and the strengthening of economic activity in the euro area. In particular, the annual growth rate of loans to the private sector was 11.2% in November, unchanged from the previous month. While – in the context of rising interest rates – the growth of household borrowing has shown signs of stabilisation in recent months, albeit at very high rates, the growth of borrowing by non-financial corporations continues to trend upwards. Thus, credit continues to expand rapidly and in a broad-based fashion, thereby remaining the main driver of the current strong monetary growth when viewed from the counterpart side of the MFI balance sheet.","Taking a medium to longer-term perspective, the latest developments are consistent with a continuation of the persistent upward trend in the underlying rate of monetary expansion. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of improved economic conditions and continued strong property market developments in many parts of the euro area.","To sum up, annual inflation rates are projected to hover around 2% this year and next, with risks to this outlook remaining on the upside. Given the very strong monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Hence, very close monitoring of all developments is of the essence in order to ensure that risks to price stability over the medium term do not materialise. This will permit medium to longer-term inflation expectations in the euro area to remain solidly anchored at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.","As regards fiscal policy, almost all euro area countries have submitted their updated stability programmes. While these programmes generally indicate that governments plan to proceed towards sound budgetary positions, there are also indications that budget targets do not consistently imply sufficient consolidation and that concrete and credible measures have not yet been specified in all programmes. These indications are a cause of concern and entail risks for the future. Against the background of current good times, it is essential that sound budgetary positions are reached in countries with fiscal imbalances and that a pro-cyclical loosening is avoided in all member countries. Moreover, countries need to improve the quality of their tax and expenditure policies as part of a comprehensive medium-term strategy, so as to strengthen confidence in a growth and employment-friendly, and sustainable, fiscal policy environment.","With regard to structural reforms, over recent years euro area countries have become increasingly aware of the necessity to adjust to the challenges of increased global competition, ageing populations and accelerating technological change. In response, some have undertaken reform efforts to create more job opportunities. Both as a reflection of these reforms and as a result of wage moderation in some countries, the euro area has seen a remarkable dynamism in employment growth over the recent period. Notably, around 12 million new jobs were created in the euro area in the eight-year period since the start of Stage Three of EMU. This compares favourably with the little more than two million new jobs created in the same group of countries in the eight years before 1999. However, the Governing Council notes that significant structural impediments continue to exist and contribute to explaining why unemployment rates are still unacceptably high and participation in the labour market is still low by international standards. With other countries in the world also increasing the competitiveness of their markets, it is essential for each euro area country to minimise the market distortions induced by its particular regulations and for the euro area as a whole to remove remaining barriers to market integration. This requires the implementation of comprehensive reforms necessary to deepen market integration, soften labour market rigidities and improve wage flexibility in order to continue fostering growth and new employment opportunities.","We are now at your disposal for questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our previous decisions to raise interest rates. It has also confirmed that strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialise. This will permit medium to longer-term inflation expectations in the euro area to remain solidly anchored at levels consistent with price stability. As emphasised on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Our monetary policy remains accommodative, with the key ECB interest rates still at low levels, money and credit growth vigorous, and liquidity ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","Allow me to explain our assessment in greater detail.","Turning first to the economic analysis, the latest indicators and survey data suggest that the economic expansion has continued into 2007 and remains solid and broad-based. Looking ahead, while some volatility in the quarter-on-quarter growth rates of real GDP cannot be excluded, the medium-term outlook for economic activity continues to be favourable. Conditions remain in place for the euro area economy to continue to expand at rates around potential. Global economic growth, which has become more balanced across regions, remains robust, providing support for euro area exports. Domestic demand in the euro area is expected to maintain its momentum. Investment should remain dynamic, reflecting the benefits of an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption should also continue to gradually strengthen over time, in line with developments in real disposable income, as labour market conditions – in particular employment growth – continue to improve.","Risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, risks lie mainly on the downside. The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments owing to global imbalances.","With regard to price developments, it is essential to stress the importance of taking a medium-term perspective and to look through the possible volatility of inflation rates over the course of 2007. In this respect, it may be helpful to consider the potential volatility of inflation in greater detail. In the very short term, it appears that the changes in VAT in a large euro area country were not fully reflected in prices in January. Thereafter, it should be noted that on the basis of current prices for oil and oil futures and previous oil price developments, significant favourable base effects may progressively lead to lower inflation rates in the spring and summer. However, these effects will be temporary. Later in 2007 inflation rates are expected to rise again as a result of unfavourable base effects.","The medium to longer-term outlook for price stability remains subject to upside risks. They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far. Furthermore, renewed increases in oil prices cannot be excluded. More fundamentally, stronger than currently expected wage developments pose substantial upward risks to price stability, given the favourable momentum of real GDP growth observed over the past few quarters, the fact that survey measures of capacity utilisation are approaching the peak levels reached in 2000, and the ongoing improvement in labour market performance. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account productivity developments while recognising the still high level of unemployment and price competitiveness positions. Indeed, the Governing Council will monitor the upcoming wage negotiations in the euro area countries very carefully.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth rose further to 9.7% in December, marking the largest increase seen since the introduction of the euro. Of course, monthly figures can be volatile and we should not overemphasise short-term developments. However, continued strong money and credit growth confirm the view that the underlying rate of broad money expansion in the euro area remains vigorous, with no evidence as yet that the steady upward trend observed since mid-2004 has been halted or even reversed.","The ongoing robust expansion of money and credit reflects the still accommodative monetary policy stance and the strengthening of economic activity in the euro area. At 10.7%, the annual growth rate of loans to the private sector remained strong in December, although showing a slight moderation with respect to the previous month. Strong growth in private sector credit reflects the continuation of the upward trend in the growth of borrowing by non-financial corporations seen since mid-2004. Meanwhile, in the context of rising mortgage rates throughout the euro area and slowing housing markets in some regions, the growth of household borrowing has shown some further signs of moderation in recent months, albeit remaining at still very high rates.","Taking the appropriate medium to longer-term perspective for assessing trends in money and credit growth, the latest developments confirm the continuation of a persistent upward trend in the underlying rate of monetary expansion. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Persistent strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and continued strong property market developments in many parts of the euro area.","To sum up, in assessing price trends it is particularly important to look through any short-term volatility. On the basis of today’s assessment, after a possible fall over the spring and summer, inflation rates are likely to increase again later in the year. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments. Given the very strong monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Hence, we will be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","As regards fiscal policy, first indications confirm that fiscal developments in the euro area were relatively favourable in 2006 on the back of strong output growth and revenue windfalls. It is now essential that the momentum of improving public finances is maintained and that the pace of fiscal consolidation accelerates in 2007 and 2008 so that all euro area countries attain their medium-term objective of a sound fiscal position as soon as possible. Better than expected budgetary outcomes in 2006 and possible further revenue windfalls this year should be used for faster fiscal consolidation. Experience has shown that the temptation to relax expenditure restraint, delay necessary reforms or pursue pro-cyclical policies in an upswing needs to be firmly resisted. Fiscal consolidation measures have the best chance of success when they are based on a credible and comprehensive reform strategy, with a focus on reducing expenditure rather than increasing revenue ratios.","The Governing Council stressed that progress in the area of structural reforms and moderate increases in labour costs in some countries have been key factors in increasing employment and reducing unemployment over the last few years. Indeed, while still high at a rate of 7.5% in December 2006, the standardised unemployment rate was the lowest since the series began in 1993 and has fallen by 1.4 percentage points since its latest peak in June 2004. To fully exploit the beneficial effects of Economic and Monetary Union and the Single Market, further structural reforms must enhance the adjustment capacity of the euro area. This includes sufficient wage differentiation, especially to improve employment opportunities for less skilled workers and in regions with high unemployment. It also encompasses more flexible product and labour markets that would give rise to new investment possibilities and innovation. And it requires the removal of impediments to labour mobility – between jobs, between regions and across borders. Let me therefore recall that with Slovenia having entered the euro area, its labour force needs to be granted full access to the labour markets of all euro area countries. Generally, structural reforms, in combination with fiscal consolidation, must support sustainable developments by limiting the burden that is shifted to younger and future generations. Considerable challenges therefore remain, which differ across countries but which all urgently require determined action.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by Mr Steinbrück, President of the ECOFIN Council, and Commissioner Almunia.","At today’s meeting, we decided to raise the key ECB interest rates by 25 basis points. This decision was taken in view of the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. Today’s decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards fostering sustainable economic growth and job creation in the euro area. After today’s increase, given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise.","Turning first to the economic analysis, according to Eurostat’s first estimate, the quarter-on-quarter growth rate of real GDP in the euro area for the fourth quarter of 2006 was 0.9%, which was above previous expectations. Our current assessment is that the quarterly profile of real GDP growth is likely to be somewhat smoother in response to the impact of indirect tax changes in one large euro area country than had originally been anticipated. The strength of real GDP growth in the fourth quarter is thus indicative of ongoing robust growth in the euro area. Both domestic demand and exports made significant contributions to real GDP growth, confirming the sustained and broad-based nature of the current expansion. The information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that robust economic growth has continued into 2007.","Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices. External conditions thus provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve.","This outlook is also reflected in the new ECB staff macroeconomic projections. The projections foresee average annual real GDP growth in a range between 2.1% and 2.9% in 2007 and between 1.9% and 2.9% in 2008. In comparison with the December Eurosystem staff projections, the ranges projected for real GDP growth in 2007 and 2008 have been revised upwards, largely reflecting the strength of GDP growth in the second half of 2006 and the lower energy prices, which, if sustained, would have a positive impact on real disposable income.","In the Governing Council’s view, the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, risks lie mainly on the downside. The main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures and concerns about possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.8% in February 2007, unchanged from January 2007. The fall in headline inflation rates since the summer of 2006 has been predominantly due to lower energy prices. Looking ahead, last year’s volatility in energy prices will lead to significant base effects, affecting the profile of annual inflation rates this year. On the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall during the spring and summer before rising again towards the end of the year and then most likely hovering again at around 2%.","The new ECB staff macroeconomic projections foresee annual HICP inflation averaging between 1.5% and 2.1% in 2007 and between 1.4% and 2.6% in 2008. Compared with the December 2006 Eurosystem staff projections, the upper bound of the range projected for inflation in 2007 is somewhat lower, largely reflecting the fall in oil prices. By contrast, the projected range for inflation in 2008 is slightly higher, largely on account of the anticipated stronger economic growth, which could exert more intense pressure on factor utilisation and factor costs. In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including market expectations for future short and long-term interest rates as well as for oil and non-energy commodity prices.","At the policy-relevant medium-term horizon, the outlook for price developments remains, in the Governing Council’s view, subject to upside risks. These relate to the possibility of renewed oil price increases and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. More fundamentally, stronger than currently expected wage developments would pose significant upward risks to price stability, not least in view of the favourable momentum of real GDP growth observed over the past few quarters. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account price competitiveness positions, the still high level of unemployment in many economies, as well as productivity developments. The Governing Council will monitor the upcoming wage negotiations in the euro area countries very carefully.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth was unchanged at 9.8% in January, thus remaining at the highest rate observed since the introduction of the euro.","At 10.6%, the annual growth rate of loans to the private sector also remained strong in January. Strong growth in private sector credit reflects the continuation of the upward trend in the growth of borrowing by non-financial corporations seen since mid-2004. Meanwhile, in the context of rising mortgage rates throughout the euro area and a slowing increase in house prices in some regions, the growth of household borrowing has shown some further signs of moderation in recent months, albeit remaining at still high rates.","Taking the appropriate medium to longer-term perspective for assessing trends in money and credit growth, the latest developments confirm the continuation of a persistent upward trend in the underlying rate of monetary expansion. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures.","The robust expansion of money and credit reflects the accommodative monetary policy stance over a prolonged period of time and the strengthening of economic activity in the euro area. In an environment of ample liquidity, it points to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and continued strong property market developments in many parts of the euro area.","To sum up, in assessing price trends it is important to look through any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments in a context of robust ongoing growth in employment and economic activity. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. The Governing Council will continue to monitor very closely all developments so that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","As regards fiscal policy, there is growing confirmation that the favourable cyclical developments led to better than expected budgetary outcomes in 2006 in a number of countries and in the euro area as a whole. However, updated stability programmes foresee only moderate progress with fiscal consolidation in the coming years. In this respect, some countries’ consolidation targets appear not fully in line with the requirements of the revised Stability and Growth Pact. Risks stem in particular from a lack of well-specified and credible measures, notably on the expenditure side of budgets.","Given the favourable economic environment, the Governing Council considers it essential that pro-cyclical policies are avoided in all euro area countries and that sufficiently ambitious fiscal consolidation efforts are made in the countries with remaining budgetary imbalances and/or high public debt outstanding. The opportunity should be seized to attain sound public finances within the programme horizons and by 2010 at the latest in all euro area countries. Fiscal consolidation that is part of a medium-term-oriented, credible and expenditure-based reform strategy would support longer-term output and employment growth and help prepare for the fiscal impact of population ageing.","As regards structural reforms, the European Council will discuss the current state of, and future progress in, the implementation of the Lisbon strategy at its meeting which starts today. It is positive to see that reforms and moderate increases in labour costs have helped to bring about higher employment and lower unemployment in recent years, although progress has been uneven across EU Member States. We encourage action to create incentives and structures which support the integration of all groups into the labour market, including those for which employment rates have been relatively low in the past. Reforms of tax and benefit systems should enhance incentives to work and to create jobs. Reducing labour taxes (including social security contributions) and thereby labour costs would support employment, while setting minimum wages at a level not in line with productivity reduces the employment chances of less skilled workers. We fully support policies to improve education and the adoption of technological innovations in order to raise productivity growth. Coupled with initiatives to create a business-friendly environment, such policies would broaden the opportunities of all to participate in an enhanced growth process.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates in March. It has also confirmed that the medium-term outlook for price stability remains subject to upside risks, so that very close monitoring of all developments is warranted. Indeed, it is essential to ensure that risks to price stability over the medium term do not materialise. This will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.","Turning first to the economic analysis, recent information has underpinned our assessment of ongoing robust economic growth dynamics in the euro area. Eurostat’s second estimate has confirmed quarter-on-quarter real GDP growth in the fourth quarter of 2006 at 0.9%. Over the whole year 2006, real GDP grew by 2.7% in the euro area, unadjusted for the number of working days. On the basis of the latest data, survey releases and various indicator-based estimates, it appears that robust growth is continuing in the first half of 2007.","Looking further ahead, the conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains strong. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, increasingly supported by employment growth and improving labour market conditions.","The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, downside risks remain, stemming mainly from the external side. They relate to fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.9% in March 2007, compared with 1.8% in the first two months of the year. A detailed breakdown of the March HICP data is not yet available. Looking ahead, barring further increases in oil prices, last year’s volatility in energy prices will lead to significant base effects, thereby affecting the profile of annual inflation rates this year. On the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall in the months to come, before rising towards the end of the year to hover again at around 2%.","Over the policy-relevant medium-term horizon, the outlook for price developments remains subject to upside risks. These relate to the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. More fundamentally, stronger than currently expected wage developments could pose significant upward risks to price stability, not least in view of the favourable momentum in labour markets observed over the past few quarters. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account price competitiveness positions, the still high level of unemployment in many economies, as well as productivity developments. The Governing Council monitors the wage negotiations in euro area countries with particular attention.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth increased further to 10.0% in February, from 9.9% in January. At the same time, the annual growth rate of loans to the private sector, while remaining very strong at 10.3% in February, showed some further signs of moderation. Whereas in previous months this moderation reflected a decline in the growth rate of household borrowing in an environment of rising mortgage lending rates throughout the euro area and a slowing increase in house prices in some regions, in February it was due to a moderation in the growth of loans to non-financial corporations. When assessing such developments, it should be borne in mind that monthly figures can be influenced by temporary factors and should thus not be overstated. Indeed, the strong growth in private sector credit reflects the continuation of the strong trend in the growth of borrowing by non-financial corporations seen since mid-2004.","When put in perspective, the latest data continue to point to vigorous dynamics in the underlying rate of broad money expansion in the euro area. The continued robust expansion of money and credit reflects the low levels of interest rates over a prolonged period of time and the strengthening of economic activity in the euro area. Rising short-term interest rates, in combination with low long-term interest rates, have had an impact on developments in the individual components of monetary and credit aggregates, but have thus far had only a limited influence on the overall strength of monetary developments. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. In this environment of ample liquidity, the continued vigorous expansion of money and credit points to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and continued strong property market developments in many parts of the euro area.","To sum up, in assessing price trends it is important to look through any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments in a context of ongoing robust growth in employment and economic activity. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Accordingly, the Governing Council will continue to monitor very closely all developments. Indeed, it is essential to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","Concerning other policy areas, the Governing Council welcomed the recommendations addressed to the euro area countries in the 2007 update of the Integrated Guidelines, which was endorsed by the European Council at its meeting on 8 and 9 March, particularly to speed up fiscal consolidation, to improve the quality of public finances, to foster competition and integration, and to promote labour market reforms. Indeed, as regards fiscal policy, it is of the utmost importance to use the momentum of the improved economic situation and to press ahead vigorously with budgetary consolidation. Government deficit and debt-to-GDP ratios in euro area countries in 2006 have turned out to be significantly better than anticipated. But this positive outcome largely reflects buoyant tax revenues in the context of a favourable macroeconomic environment, offsetting in some cases higher than planned public expenditure. The better than expected fiscal outcomes in 2006 should lead to more ambitious targets for 2007 and beyond, allowing revenue windfalls to be fully allocated to deficit and debt reduction. Furthermore, procyclical fiscal policies should be avoided in all countries. This is of vital importance to ensure fiscal sustainability in preparation for the impact of ageing populations and is fully in line with the revised Stability and Growth Pact. Reviewing public expenditure and taxation so as to improve the quality of public finances would additionally foster economic growth and fiscal sustainability. We also support ambitious structural reforms, which would further contribute to the smooth functioning of Monetary Union and support growth potential and job creation. In particular, improving labour market flexibility to better align wage and productivity developments and facilitating labour mobility would further strengthen the resilience of countries to shocks and ensure their competitiveness.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference here in Dublin. I would like to thank Governor Hurley for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council.","Let me now report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates in March. Strong vigilance is of the essence in order to ensure that risks to price stability over the medium term do not materialise. In turn, this will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.","Turning first to the economic analysis, the latest indicators and survey data confirm that the expansion of economic activity continued in the first quarter of 2007 and remains solid and broad-based. Looking ahead, the medium-term outlook for economic growth in the euro area continues to be favourable. Conditions are in place for the ongoing expansion to proceed at sustained rates. Global economic growth has become more balanced across regions and, while moderating somewhat in recent quarters, remains strong. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its momentum. Investment should remain dynamic, benefiting from an extended period of favourable financing conditions, balance sheet restructuring, strong corporate earnings and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, increasingly supported by employment growth and improving labour market conditions.","The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, the balance of risks remains on the downside, stemming mainly from external factors. Such factors include fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments due to global imbalances.","With regard to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.8% in April 2007, after 1.9% in March. Looking at the coming months, barring further increases in oil prices, significant base effects deriving from last year’s energy price volatility will strongly influence the profile of annual inflation rates. On the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall somewhat in the months to come, before rising again towards the end of the year to hover at levels around 2%.","Over the policy-relevant medium-term horizon, the outlook for price developments remains subject to upside risks. These relate notably to the increasing capacity utilisation in the euro area economy, the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. More fundamentally, stronger than currently expected wage developments could pose significant upward risks to price stability, not least in view of the favourable momentum in labour markets observed over the past few quarters. The Governing Council is monitoring wage negotiations in the euro area countries with particular attention. It is crucial that the social partners meet their responsibilities so as to continue to avoid wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. In this context, it is also important to point out that wage agreements should be sufficiently differentiated and take into account price competitiveness positions, the still high level of unemployment in many economies and productivity developments across sectors.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. The underlying rate of monetary expansion remains strong, in a context of already ample liquidity. The ongoing strength of monetary expansion is reflected in the increasingly rapid growth of M3, which in March reached an annual rate of 10.9%, as well as in the ongoing high levels of credit growth. Monetary and credit expansion is due partly to the moderate level of interest rates and solid economic growth.","Short-term monetary and credit developments can be affected, inter alia, by the shape of the yield curve and external factors, and be subject to some degree of volatility. Looking through such transitory aspects, there are, however, several indications that higher short-term interest rates are influencing monetary dynamics, although they have not, as yet, significantly dampened the overall strength of these dynamics. For example, increases in short-term rates have served to moderate the expansion of the narrow aggregate, M1, in recent quarters, but its annual growth is still robust. Equally, the annual growth rate of loans to the private sector has shown some signs of stabilising since mid-2006, albeit at double-digit levels.","All in all, taking into account both short-term factors and the underlying trend of the continued vigorous expansion of money and credit, there are clear indications of upside risks to price stability at medium to longer-term horizons. In fact, following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. In this environment, monetary developments continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and still strong property market developments.","To sum up, in assessing price trends it is important to look beyond any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments in a context of ongoing robust growth in employment and economic activity. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Accordingly, the Governing Council will continue to be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","In relation to fiscal policies, the Governing Council welcomes the recent commitment by the euro area finance ministers – at the Eurogroup meeting in Berlin on 20 April – to make full use of the current economic growth and better than expected tax revenues to pursue sound fiscal policies and to avoid procyclical policies in line with the provisions of the Stability and Growth Pact. In the view of the Governing Council, this requires a rigorous implementation of 2007 budgets, the avoidance of expenditure overruns and the full allocation of unexpected extra revenues to deficit and debt reduction. For 2008, countries with remaining fiscal imbalances are expected to pursue more ambitious than planned budgetary targets As a result, all euro area countries should achieve their medium-term objective of sound budgetary positions as soon as possible and by 2010 at the latest. Moreover, all countries should avoid fiscal policies that feed macroeconomic imbalances. This would allow euro area countries to prepare themselves for less favourable economic conditions.","As repeatedly stressed, the Governing Council fully supports structural reforms that enhance competition, increase productivity and foster economic flexibility, thus promoting the potential for real GDP growth and employment. Increased productivity also allows for increases in real wages without negatively impacting on employment, thereby supporting the income growth of the euro area work force. In recent years, average wage increases in the euro area as a whole have been rather moderate, making a vital contribution to job creation and lower unemployment. It is important that this favourable trend in labour markets continues, so contributing to a prolonged and robust upswing. In this respect, sufficient wage differentiation is required so as to improve employment opportunities for less skilled workers and in sectors and regions with high unemployment. Furthermore, the removal of impediments to labour mobility would help to address local imbalances in labour markets and to enhance the adjustment flexibility of euro area economies to economic shocks. The euro area could reap major benefits from these policies in terms of economic dynamism, more job creation, lower unemployment and increased per capita income.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","At today’s meeting, we decided to raise the key ECB interest rates by 25 basis points. This decision was taken in view of the prevailing upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses. Today’s decision will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards fostering sustainable economic growth and job creation in the euro area. After today’s increase, given the positive economic environment in the euro area, our monetary policy is still on the accommodative side, with overall financing conditions favourable, money and credit growth vigorous, and liquidity in the euro area ample. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The Governing Council will monitor closely all developments to ensure that risks to price stability over the medium term do not materialise.","Allow me to explain our assessment in greater detail, starting with the economic analysis. Incoming information clearly confirms that the euro area economy continues to expand at a pace which is significantly stronger than generally expected a year ago. With a quarter-on-quarter rate of 0.6%, real GDP growth in the first quarter of 2007 was again somewhat above previous expectations. Other available information on economic activity, notably various surveys of business and consumer confidence, suggests that solid growth has continued into the second quarter.","Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to continue to grow at a sustained rate. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from financing conditions which remain favourable, accumulated and ongoing strong corporate earnings, balance sheet restructuring as well as business efficiency gains achieved over an extended period. Meanwhile, consumption should be supported by developments in real disposable income, as labour market conditions continue to improve.","This outlook is also reflected in the new Eurosystem staff macroeconomic projections. The projections foresee average annual real GDP growth in a range between 2.3% and 2.9% in 2007 and between 1.8% and 2.8% in 2008. In comparison with the previous ECB staff projections, the ranges projected for real GDP growth in 2007 are within the upper part of the ranges from March. For 2008, the ranges have been revised marginally downwards, following the increase in oil prices over recent months.","In the Governing Council’s view, the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At medium to longer horizons, the balance of risks remains on the downside, owing mainly to external factors. These relate in particular to fears of a rise in protectionist pressures, the possibility of further increases in oil prices, concerns about possible disorderly developments owing to global imbalances and potential shifts in financial market sentiment.","As regards price developments, oil prices have risen again over recent months. Accordingly, as reflected in Eurostat’s flash estimate, annual HICP inflation was 1.9% in May 2007, unchanged from April but somewhat higher than expected a few months ago. Looking ahead, the short-term profile of annual inflation rates continues to be determined largely by current and past energy price developments, as last year’s volatility in energy prices leads to significant base effects. On the basis of the current level of oil prices and oil price futures, which show an upward slope, annual inflation rates are likely to fall slightly in the months ahead before rising again significantly towards the end of the year.","Consistent with this view, Eurosystem staff projects average annual HICP inflation of between 1.8% and 2.2% in 2007 and between 1.4% and 2.6% in 2008. Compared with the March 2007 ECB staff projections, the range projected for inflation in 2007 is somewhat higher, largely reflecting higher oil prices. The projected range for inflation in 2008 is unchanged. In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including assumptions for future short and long-term interest rates that are based on market expectations derived from the yield curve, as well as assumptions for oil and non-energy commodity prices.","At the policy-relevant medium-term horizon, risks to the outlook for price stability remain on the upside in the Governing Council’s view. These risks relate notably to the domestic side. In particular, capacity utilisation in the euro area economy is increasing and labour markets are gradually improving. Accordingly, there is a risk that wage developments will be stronger than expected, which would pose significant upward risks to price stability. In addition, pricing power in market segments with low competition may increase in such an environment. It is therefore crucial that all parties concerned meet their responsibilities. Wage agreements in particular should be sufficiently differentiated to take into account price competitiveness positions, the still high level of unemployment in many economies and sector-specific productivity developments. The Governing Council stresses that wage developments should be avoided which would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. In addition, upside risks to price stability arise from increases in administered prices beyond those anticipated thus far. Finally, on the external side, upside risks stem from the possibility of further unexpected oil price rises.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. The underlying rate of monetary expansion remains strong, in a context of already ample liquidity. The ongoing strength of monetary expansion is reflected in the continued rapid growth of M3, which reached an annual rate of 10.4% in April, as well as the still high level of credit growth. The strong rate of monetary and credit expansion reflects, in part, favourable financing conditions and solid economic growth.","In the short term, monetary and credit developments can be affected, inter alia, by the shape of the yield curve and external factors, and be subject to some degree of volatility. In assessing the policy-relevant underlying trends in monetary and credit growth, it is important to look through such transitory aspects. Taking this perspective, there are several indications that higher short-term interest rates are now influencing monetary dynamics, although they have not, as yet, significantly dampened the overall strength of the underlying rate of monetary and credit expansion. For example, increases in short-term rates have contributed to a more moderate expansion of the narrow aggregate, M1, in recent quarters. Equally, the annual growth rate of loans to the private sector has shown some signs of stabilising since mid-2006, albeit at double-digit levels. The stabilisation of loan growth is now becoming more broad-based, as evidenced in recent months by developments in borrowing by non-financial corporations and by households. At the same time, house price growth has come down somewhat, although remaining at high levels on average in the euro area.","Taking into account both short-term factors and the underlying trend of the continued vigorous expansion of money and credit, there are clear indications of upside risks to price stability at medium to longer-term horizons. Following several years of robust monetary growth, the liquidity situation in the euro area remains ample. In this environment, monetary developments continue to require very careful monitoring, particularly against the background of the expansion in economic activity and still strong property market developments.","To sum up, in assessing price trends it is important to look beyond any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to the domestic side. As capacity utilisation increases and labour markets gradually improve, constraints are emerging which could lead in particular to stronger than expected wage developments. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Accordingly, the Governing Council will monitor closely all developments in order to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.","As regards fiscal policy, all countries should be in line with the rules and provisions of the Stability and Growth Pact. This will be crucial for the smooth functioning of Monetary Union, given that the Stability and Growth Pact is an indispensable part of its institutional setting. Following the significant budgetary improvement recorded in 2006, the latest available forecasts suggest a further reduction in the government deficit-to-GDP ratio of the euro area over the period 2007-08. This reflects in particular projected ongoing strong revenue collection in the context of a favourable macroeconomic outlook. However, the structural improvement is more muted. The current economic “good times” should be used to rapidly redress the remaining budgetary imbalances in euro area countries as well as to accelerate the adjustment towards their medium-term objectives of sound budget positions with a focus on expenditure restraint. As agreed by the euro area finance ministers at the Eurogroup meeting in Berlin on 20 April, taking advantage of the favourable cyclical conditions would enable most euro area members to achieve their medium-term objectives in 2008 or 2009, and all of them should aim for 2010 at the latest. This is particularly important with a view to reducing the still high government debt ratios and preparing for the fiscal challenges arising from population ageing. In order to ensure that fiscal developments are monitored effectively, the Governing Council supports all efforts by Eurostat to improve the fiscal data situation. It also welcomes the increased emphasis placed by the ECOFIN Council on measures to improve the quality of public finances and increase the efficiency of public administration.","As regards structural reforms, the Governing Council fully supports any efforts that enhance competition, increase productivity and foster economic flexibility, thus promoting higher sustainable real GDP growth and employment. In this respect, we strongly back reforms focusing on reducing labour market rigidities, product market barriers and administrative burdens, and on stimulating technological innovation. Exploiting the complementary nature of reforms would increase their benefits in terms of long-term economic dynamism and price stability. Furthermore, the importance of a successful conclusion of the Doha round of trade talks for productivity and growth in Europe should not be underestimated. In the end, higher productivity growth will allow increases in real wages without negatively affecting employment, thereby supporting the income growth of the euro area workforce.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our previous meeting has further underpinned the reasoning behind our decision to increase interest rates in June. It has also confirmed that the medium-term outlook for price stability remains subject to upside risks. Given the positive economic environment in the euro area, our monetary policy is still on the accommodative side, with overall financing conditions favourable, money and credit growth vigorous, and liquidity in the euro area ample. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted. The Governing Council will continue to monitor closely all developments to ensure that risks to price stability over the medium term do not materialise and medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area.","Allow me to explain our assessment in greater detail, starting with the economic analysis. The latest data and survey releases have remained broadly positive, supporting the view that economic activity in the euro area in the second quarter of 2007 continued to expand at solid rates in line with our baseline scenario.","Looking ahead, the medium-term outlook for economic activity remains favourable. The conditions are in place for the euro area economy to continue to grow at a sustained rate. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from overall financing conditions which remain favourable, accumulated and ongoing strong corporate earnings, balance sheet restructuring as well as business efficiency gains achieved over an extended period. Meanwhile, consumption should be supported by developments in real disposable income, as labour market conditions continue to improve.","The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At medium to longer horizons, the balance of risks remains on the downside, owing mainly to external factors. These relate in particular to fears of a rise in protectionist pressures, the possibility of further increases in oil prices, concerns about possible disorderly developments owing to global imbalances and potential shifts in financial market sentiment.","As regards price developments, as reflected in Eurostat’s flash estimate, annual HICP inflation was 1.9% in June 2007, unchanged from previous months. Looking ahead, the short-term profile of annual inflation rates continues to be determined largely by current and past energy price developments, as last year’s volatility in energy prices leads to significant base effects. On the basis of the current level of oil prices and oil price futures, which show an upward slope, annual inflation rates are likely to fall only slightly in the months ahead before rising again significantly towards the end of the year.","At the policy-relevant medium-term horizon, risks to the outlook for price stability remain on the upside. These risks relate notably to the domestic side. In particular, as capacity utilisation in the euro area economy is high and labour markets continue to improve, constraints are emerging which could lead in particular to stronger than expected wage developments. In addition, pricing power in market segments with low competition may increase in such an environment. Such developments would pose significant upward risks to price stability. It is therefore crucial that all parties concerned meet their responsibilities. Wage agreements in particular should be sufficiently differentiated to take into account price competitiveness positions, the still high level of unemployment in many economies and sector-specific productivity developments. The Governing Council stresses the importance of avoiding wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. In addition, upside risks to price stability arise from increases in administered prices and indirect taxes beyond those anticipated thus far, and the potentially procyclical stance of fiscal policy in some countries. Finally, on the external side, upside risks stem from the possibility of further unexpected oil price rises.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. The underlying rate of monetary expansion remains strong, in a context of already ample liquidity. The ongoing strength of monetary expansion is reflected in the continued rapid growth of M3, which increased at an annual rate of 10.7% in May, as well as the still high level of credit growth. The strong rate of monetary and credit expansion reflects, in part, favourable financing conditions and solid economic growth.","When identifying and assessing the policy-relevant underlying trends in monetary and credit expansion, it is important to look through shorter-term volatility and the effects of changes in the slope of the yield curve and external factors that are likely to prove temporary. Taking this perspective, there are several indications that higher short-term interest rates are now influencing monetary dynamics, although they have not, as yet, significantly dampened the overall strength of the underlying rate of monetary and credit expansion. For example, increases in short-term rates have contributed to a more moderate expansion of the narrow aggregate, M1, in recent quarters. Equally, the annual growth rate of loans to the private sector has shown some signs of stabilising since mid-2006, albeit at double-digit levels. The stabilisation of loan growth is now becoming more broad-based, and is apparent in borrowing by both non-financial corporations and households. In the latter case, the stabilisation of loan growth also reflects some moderation in house price dynamics, although house price growth nonetheless remains at high levels on average in the euro area.","Given the continued vigour of money and credit expansion, there are clear indications of upside risks to price stability at medium to longer-term horizons. Following several years of robust monetary growth, the liquidity situation in the euro area remains ample. In this environment, monetary developments continue to require very careful monitoring, particularly against the background of the expansion in economic activity and still strong property market developments.","To sum up, in assessing price trends it is important to look beyond any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to the domestic side. As capacity utilisation is high and labour markets continue to improve, constraints are emerging which could lead in particular to stronger than expected wage and profit margin developments. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Accordingly, the Governing Council will monitor closely all developments in order to ensure that risks to price stability over the medium term do not materialise and medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.","As regards fiscal policy, the Governing Council notes with concern the pressures emerging in a number of countries to relax previous fiscal consolidation targets. In the current overall benign economic environment, it is imperative that all governments comply with the provisions of the Stability and Growth Pact on fiscal consolidation in economic “good times” and that all the countries concerned honour the commitments they made at the Eurogroup meeting in Berlin on 20 April 2007. As agreed in Berlin, taking advantage of the favourable cyclical conditions would enable most euro area countries to achieve their medium-term objectives in 2008 or 2009, and all of them should aim for 2010 at the latest. These pledges should be reflected in the 2008 budget plans so as to avoid repeating governments’ past failure to adjust fiscal balances in economic “good times”. At the same time, the Governing Council welcomes the emphasis placed by the ECOFIN Council on measures to improve the quality and efficiency of public finances.","As regards structural reforms, the Governing Council fully supports all measures that improve the functioning of product, labour and financial markets. In the context of the Integrated Guidelines for Growth and Jobs, the EU Member States noted that a well-functioning Internal Market remains at the heart of the Lisbon agenda and that its four freedoms will reinforce the European Union’s competitiveness. The completion of the Single Market is therefore a priority for Member States, in particular as regards further financial market integration, the pursuit of effective competition in the energy market and the implementation of the Services Directive. Increased market competition and a reduction of cross-border barriers are beneficial for consumers since they lead to lower prices and a greater choice of products. For firms, they lead to higher efficiency, greater dynamism and an enhanced capacity to cope with economic shocks and to face the challenges and opportunities posed by globalisation. Following the principle of “an open market economy with free competition” is pivotal to fostering long-term economic growth and job creation, increasing the resilience of the euro area to economic shocks and facilitating the maintenance of price stability in the euro area. This was confirmed at the last European Council meeting, when the EU leaders agreed to annex a new protocol to the Treaties, in the context of the Intergovernmental Conference. This protocol underlines the fact that an Internal Market which includes a system ensuring that competition is not distorted is indeed indispensable for the good functioning of the EU economies.","We are now at your disposal for questions.","Trichet: Let me just say a few words and then I will be ready to respond to questions, as usual.","Recent economic developments and survey indicators confirm that sustained economic growth continued in the euro area through the second quarter. Rising oil prices, emerging capacity constraints and the potential for stronger wage and cost dynamics, among other factors, imply upside risks to price stability over the medium term. The existence of upside risks to price stability at medium to longer-term horizons is confirmed by the strength of the underlying rate of monetary expansion: strong vigilance is therefore of the essence to ensure that risks to price stability over the medium term do not materialise.","Both, our previous economic and monetary analysis as expressed in particular in the last press conference have been fully confirmed by the ongoing information we have received since the last meeting of the Governing Council. Let me also stress that we never pre-commit, we decide at the moment of the meeting of the Governing Council on the basis of the information that we have, facts and figures, and according to the judgement that we make at that moment. I re-emphasise that we never pre-commit.","Let me also say that we are experiencing a period of market nervousness, a period where we see volatility in markets in general and re-appreciation of risks. We think that these developments in financial markets deserve attention. Shifts in market sentiment need careful monitoring. We will continue to pay great attention to the developments in the market over the period to come.","I am now open to questions.","Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our previous meeting has confirmed that the medium-term outlook for price stability remains subject to upside risks, as identified by both our economic and monetary analyses. Incoming macroeconomic data also confirm the strong fundamentals of the euro area economy and support a favourable medium-term outlook for real GDP growth. Against this background, our monetary policy stance is still on the accommodative side with, inter alia, money and credit growth vigorous in the euro area. At the same time, the financial market volatility and reappraisal of risk of recent weeks have led to an increase in uncertainty. Given this high level of uncertainty, it is appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy in the context of our medium-term-oriented monetary policy strategy aimed at delivering price stability. Accordingly, the Governing Council will monitor very closely all developments. On the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium-term inflation expectations remain firmly anchored in line with price stability. This is all the more important at times of financial market volatility and increased uncertainty. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","Allow me to explain our assessment in greater detail, starting with the economic analysis. All in all, the data available suggest that economic activity in the euro area is continuing to expand at sustained rates. Euro area real GDP growth in the second quarter moderated to 0.3% quarter on quarter, compared with 0.7% in the previous quarter. However, due account should be taken of the volatility of these growth rates. Accordingly, economic growth during the first half of 2007, as a whole, was in line with potential growth. Data on activity in the third quarter – from various confidence surveys and indicator-based estimates – remain favourable overall and support the assessment that real GDP is growing at sustained rates. In particular, the latest data on unemployment are favourable and the levels of all confidence indicators to August were high. Global economic activity is expected to remain robust, as the likely slowdown in the United States is expected to be largely offset by the continued strong growth in emerging markets. This will continue to provide support to euro area exports and investment. In addition, consumption growth in the euro area should strengthen further over time, in line with developments in real disposable income, as employment conditions improve further. That said, in view of the overall potential impact of increased financial market volatility and the re-pricing of risk on the real economy, appropriate monitoring of the economy’s evolution is necessary.","This outlook is also reflected in the September 2007 ECB staff macroeconomic projections for the euro area, which for the first time include Cyprus and Malta. The projections foresee average annual real GDP growth in a range between 2.2% and 2.8% in 2007, and between 1.8% and 2.8% in 2008. In comparison with the June Eurosystem staff projections, the range projected for real GDP growth in 2007 has been revised slightly downwards, mainly reflecting the assumptions of somewhat higher oil prices and slightly tighter market financing conditions due to higher average risk premia.","In the view of the Governing Council, the ranges presented serve as a good reminder of the general uncertainty surrounding economic projections, which it is worthwhile emphasising given the current volatility in the financial markets. The risks to these projections for economic growth are judged to lie on the downside. These downside risks relate mainly to a potentially broader impact from the ongoing reappraisal of risk in financial markets, global imbalances and protectionist pressures, as well as further oil and commodity price rises.","With respect to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.8% in August 2007, the same rate as in the previous month. However, over the remainder of this year, inflation rates are likely to increase again to above 2%. In the September 2007 ECB staff projections, annual HICP inflation is projected to lie between 1.9% and 2.1% in 2007, and between 1.5% and 2.5% in 2008. In 2008, a declining impact from indirect taxes and energy prices is expected to be compensated by higher pressures from unit labour costs. Compared with the June 2007 Eurosystem staff projections, the new ranges for 2007 and 2008 are within the ranges previously projected.","The Governing Council is of the view that risks to this outlook for price developments lie on the upside. These upside risks include increases in indirect taxes beyond those anticipated thus far and further increases in oil prices and prices for agricultural products. More fundamentally, stronger than expected wage developments and an increase in the pricing power in market segments with low competition may occur. Such developments would pose upside risks to price stability. It is therefore crucial that all parties concerned meet their responsibilities. The potential materialisation of these risks – or their abatement – requires close monitoring.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. On the basis of the latest available data (covering the period to the end of July), the underlying rate of monetary and credit expansion remains strong. This is reflected in the rapid growth of the broad monetary aggregate, M3, which grew at an annual rate of 11.7% in July, and the strength of MFI loans to the private sector, which continue to increase at double-digit rates on an annual basis.","When identifying and assessing the policy-relevant underlying trends in monetary expansion, it is important to look through short-term volatility and the impact of temporary factors on developments in specific monetary aggregates. Taking the appropriate broader and medium-term-oriented perspective, there are several indications that increases in short-term interest rates over recent quarters have influenced monetary developments. For example, increases in short-term rates have contributed to a more modest expansion of M1, as the opportunity cost of holding the most liquid components of M3 has increased. Moreover, higher short-term rates have led to some stabilisation in the growth of MFI credit to the private sector, albeit at double-digit annual rates, with the growth of household borrowing moderating as house price dynamics and real estate activity have slowed. However, these developments are yet to dampen the overall rate of monetary expansion, as the flattening of the yield curve has increased the attractiveness of monetary assets relative to less liquid longer-maturity instruments, thereby causing broad money growth to rise. Furthermore, the growth of loans to non-financial companies has shown renewed vigour in recent months.","In the current situation, let me remind you that volatility in financial markets can temporarily exert considerable influence over monetary dynamics. In previous episodes, private sector perceptions of and attitudes towards risk, and the resulting portfolio behaviour, have strongly affected monetary developments. The monetary data for July may already have been partly influenced by such portfolio considerations and this could possibly apply even more to the August data to be released later in September. However, as has been demonstrated in the past, an in-depth and comprehensive analysis of the monetary data can help in our understanding of the impact of financial developments on monetary developments and to extract the policy-relevant signal in monetary growth with regard to longer-term inflationary trends. In such circumstances, the broad-based approach adopted in the ECB’s monetary analysis is at a premium.","Overall, the continued vigour of underlying monetary and credit expansion points to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring.","To sum up, a cross-check of the information identified under the economic analysis with the outcome of the monetary analysis has confirmed the existence of upside risks to price stability over the medium term – against the background of the strong fundamentals of the euro area economy. Accordingly, our monetary policy stance is still on the accommodative side with, inter alia, money and credit growth vigorous in the euro area. At the same time, given the high level of uncertainty, additional information is needed before further conclusions for monetary policy can be drawn. Accordingly, the Governing Council will monitor very closely all developments. On the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium-term inflation expectations remain firmly anchored in line with price stability. In the current context, it is all the more important that inflation expectations remain firmly anchored in line with price stability. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","In the area of fiscal policy, progress in structural fiscal consolidation remains slow and there are risks that some countries will pursue expansionary pro-cyclical fiscal policies. For the execution of 2007 budgets and the planning of 2008 budgets, it is crucial that the mistakes made during the previous economic upswing of 1999-2000 are not repeated. At present, countries with fiscal imbalances need to correct them in line with the requirements of the Stability and Growth Pact. The commitment in the Eurogroup to reach medium-term budgetary objectives in 2008 or 2009, and by 2010 at the latest, has to be respected by all euro area member countries. Those countries that have already achieved sound fiscal positions need to abstain from pro-cyclical fiscal policies.","Turning to structural reform, the Governing Council welcomes further efforts to increase the productive capacity of the euro area through higher employment. Euro area labour markets have shown clear signs of progress in the last few years, partly reflecting the impact of past labour market reforms. Further progress is needed, however, to enhance occupational and geographical labour mobility and skill creation, so as to overcome the comparatively low rates of labour market participation and still high unemployment rates in some countries and regions.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference here in Vienna. I would like to thank Governor Liebscher for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","Let me now report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our previous meeting has confirmed that the outlook for price stability over the medium term is subject to upside risks. Against this background, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our primary objective. The fundamentals of the euro area economy support a favourable medium-term outlook for economic activity. In particular, corporate earnings and profitability have been sustained, employment growth has been robust and unemployment has fallen. However, given the financial market volatility and the reappraisal of risk seen in recent weeks, this assessment is surrounded by heightened uncertainty. In view of the only limited range of new economic data that have become available since our meeting in early September, particular caution needs to be exercised when assessing any potential impact of the financial market developments on the real economy. Hence, it remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy in the context of our medium-term-oriented monetary policy strategy focused on maintaining price stability. Accordingly, the Governing Council will monitor very closely all developments. On the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability, thereby favouring an environment conducive to sustained economic growth, well-functioning markets and job creation. Providing such an anchor for medium and long-term inflation expectations is all the more important at times of financial market volatility and increased uncertainty. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","Allow me to explain our assessment in greater detail, starting with the economic analysis. On the basis of the available data, it appears that the sustained real economic growth experienced in the euro area in the first half of 2007 has continued through the summer. This is also reflected in available forecasts for real GDP growth for the third and fourth quarters of 2007. While financial market volatility appears to have contributed to a decline in euro area consumer and business confidence indicators in September, these indicators remain above their historical averages and continue to point to ongoing sustained growth during the second half of 2007.","Looking further ahead, available forecasts for 2008 continue to confirm our main scenario of real GDP growing at around trend potential. This scenario is based on the expectation that global economic activity will remain robust, with the moderation of economic growth in the United States largely offset by the continued strength of emerging market economies. This will provide ongoing support to euro area exports and investment. Consumption growth in the euro area should also contribute to economic growth, in line with developments in real disposable income, as employment conditions remain supportive. That said, in view of the potential impact of increased financial market volatility and the re-pricing of risk on the real economy, the uncertainties surrounding this broadly favourable outlook for economic activity have increased.","On balance, risks to the outlook for growth are judged to lie on the downside. These downside risks relate mainly to the potential for a broader impact from the ongoing reappraisal of risk in financial markets on confidence and financing conditions, concerns about protectionist pressures and possible disorderly developments owing to global imbalances, as well as further oil and commodity price rises.","As regards price developments, according to Eurostat’s flash estimate, the annual HICP inflation rate increased strongly to 2.1% in September 2007, from 1.7% in August. As we have already indicated on previous occasions, we are now entering a period during which unfavourable effects from energy prices will have a strong impact on annual HICP inflation rates. Owing mainly to such effects, as a result of the marked decline in energy prices a year ago combined with the recent substantial increase in oil prices, we expect the inflation rate to remain significantly above 2% in the remaining months of 2007 and in early 2008, before moderating again. Largely as a consequence of capacity constraints and relatively tight labour market conditions, inflation is expected to be around 2% on average in 2008.","Risks to the outlook for price developments remain on the upside. They continue to include the possibility of further increases in the prices of oil and agricultural products as well as additional increases in administered prices and indirect taxes beyond those announced thus far. Taking into account the existence of capacity constraints, the favourable momentum of real GDP growth observed over the past few quarters and the positive signs from labour markets, stronger than currently expected wage developments may occur, and an increase in the pricing power in market segments with low competition could materialise. Such developments would pose upward risks to price stability. It is therefore crucial that all parties concerned meet their responsibilities.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. A broad assessment of the monetary data supports the view that the underlying rate of money and credit growth remains strong. However, the August annual growth rate of close to 12% in the monetary aggregate M3 as well as the annual growth rate of loans to non-financial corporations, which reached a record level of more than 14% in August, may have been influenced by a number of temporary or special factors, such as the flattening of the yield curve and the recent financial market volatility, and may therefore overstate the underlying rate of money and credit expansion.","A broad assessment of underlying trends in money and credit growth is particularly important during the current period of financial market volatility, as the latter may influence the short-term behaviour of private agents and thereby affect monetary developments. Thus, monetary and credit data can offer an important insight into how financial institutions, households and firms have responded to the financial market volatility. Indeed, previous episodes of heightened financial market uncertainty have been associated with large portfolio shifts into safe and liquid monetary assets. For the time being, however, there is still little evidence in the monetary data for such shifts since the rise in financial market volatility in early August, while it cannot be excluded that the flow of bank loans to the non-financial corporate sector in August partly reflects the re-intermediation of some financing onto bank balance sheets. Further data will be required to develop a more complete view of the impact of the financial market volatility on bank balance sheets, financing conditions and money and credit growth.","Overall, the continued vigour of underlying monetary and credit expansion points to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring so as to detect underlying trends on the one hand and to better understand shorter-term dynamics on the other. This will provide a more complete picture of the response of the private sector to the increased volatility in financial markets.","To sum up, a cross-check of the information identified under the economic analysis with the outcome of the monetary analysis has confirmed the existence of upside risks to price stability over the medium term, against the background of good economic fundamentals in the euro area. Accordingly, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our primary objective. At the same time, given the heightened level of uncertainty, additional information is needed before further conclusions for monetary policy can be drawn. Consequently, the Governing Council will monitor very closely all developments. On the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability, which is all the more important in the current context. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","Turning to fiscal policy, the Governing Council is increasingly concerned about a weakening in structural fiscal consolidation efforts and the delaying of decisive action to address fiscal imbalances. Against this background, all euro area countries concerned are urged to meet the commitments made in the context of the Stability and Growth Pact to structurally improve their fiscal balances. The commitment made in the Eurogroup to reach medium-term budgetary objectives in 2008 or 2009, and by 2010 at the latest, must also be respected by all euro area countries. Those countries that have already achieved sound fiscal positions need to abstain from pro-cyclical fiscal policies. Sound fiscal policies will also make an important contribution to maintaining confidence at a time of heightened uncertainty in financial markets.","With regard to structural reforms, the Governing Council fully supports efforts to enhance competition, increase productivity and foster market flexibility. While the services sector is a particularly important area for reform, further efforts are also needed to improve the functioning of the agricultural markets. Against the background of a marked increase in international food commodity prices, further liberalisation and reforms in the EU agricultural markets would help to enhance their efficiency and benefit European consumers through lower prices. The successful conclusion of the Doha round of world trade negotiations should also help to improve the functioning of global trade in general and of agricultural markets in Europe and worldwide in particular.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our previous meeting fully confirms that the outlook for price stability over the medium term is subject to upside risks. Against this background, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our mandate. The economic fundamentals of the euro area remain sound and support a favourable medium-term outlook for economic activity. However, the ongoing reappraisal of risk in financial markets has led to continued uncertainty. This warrants a thorough examination of additional information before drawing further conclusions for monetary policy in the context of our medium term-oriented monetary policy strategy focused on maintaining price stability. Accordingly, the Governing Council will monitor very closely all developments. By acting in a firm and timely manner on the basis of our assessment, we will ensure that risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability, which is all the more important at times of financial market volatility and increased uncertainty. This will favour an environment conducive to sustained economic growth, well-functioning markets and job creation. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","Allow me to explain our assessment in greater detail, starting with the economic analysis. On the basis of the available data, it appears that the sustained real economic growth experienced in the euro area in the first half of 2007 has continued through the third quarter, as reflected in the data for industrial production and retail sales that have been released since our meeting in early October. While financial market volatility seems to have contributed to a decline in euro area consumer and business confidence indicators in the past few months, these indicators generally remain above their historical averages and continue to point to ongoing sustained growth. Overall, the fundamentals of the euro area remain sound, including in particular sustained corporate earnings and profitability, robust employment growth and falling unemployment to levels not seen for 25 years.","Available forecasts for 2008 continue to confirm our main scenario of real GDP growing at around trend potential. This scenario is based on the expectation that the global economy will remain resilient, with the slowdown of economic growth in the United States partly offset by the sustained strength of emerging market economies. Continued strong external demand should provide ongoing support to euro area exports and investment. Consumption growth in the euro area should also contribute to economic growth, in line with developments in real disposable income, as continued employment growth provides supportive conditions. That said, in view of the potential impact of prolonged financial market volatility and the re-pricing of risk on the real economy, the level of uncertainty surrounding this broadly favourable outlook for economic activity remains high.","On balance, risks to the outlook for growth are judged to lie on the downside. These downside risks relate mainly to the potential for a broader impact from the ongoing reappraisal of risk in financial markets on confidence and financing conditions, further oil and commodity price rises, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, the annual HICP inflation rate increased very strongly to 2.6% in October 2007, from 2.1% in September. This sharp increase is a matter of particular concern and it is essential that it does not affect medium to longer-term inflation expectations. To that effect, we have already indicated on previous occasions that we are now in a period during which unfavourable effects from energy prices will have a strong upward impact on annual HICP inflation rates, owing mainly to the marked decline in energy prices a year ago. In addition, these effects have been strengthened by recent substantial further increases in oil, non-oil commodity and, in particular, food prices. Overall, we expect the HICP inflation rate to remain significantly above 2% in the coming months before moderating again in the course of 2008.","Risks to the medium-term outlook for price developments are fully confirmed to lie on the upside. These risks include the possibility of persistently high oil and agricultural prices, continuing the strong momentum observed in recent months, as well as unanticipated increases in administered prices and indirect taxes. Moreover, taking into account the existence of capacity constraints, the favourable momentum of real GDP growth observed over the past few quarters, and the positive signs from labour markets, stronger than currently expected wage developments may occur. Furthermore, an increase in pricing power in market segments with low competition could materialise. Such developments would pose upward risks to price stability. It is therefore crucial that all parties concerned meet their responsibilities and that second-round effects be avoided. In addition, the explicit or de facto indexation of nominal wages to prices should be reduced and ultimately eliminated.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. The strength of both money and credit growth in recent months – with the annual growth rates of M3 and MFI loans to the private sector both at more than 11% in September – may have been influenced by a number of temporary or special factors, such as the flattening of the yield curve and the recent financial market volatility. However, even taking into account these special factors, the underlying rate of money and credit expansion remains strong. Monetary developments therefore continue to require very careful monitoring so as to detect underlying trends on the one hand and to better understand shorter-term dynamics on the other. This monitoring will provide a more complete picture of the response of the private sector to the increased volatility in financial markets.","A broad assessment of underlying trends in money and credit growth is particularly important given recent financial market developments, since financial volatility may influence the short-term behaviour of money-holders and thereby affect monetary developments. Monetary and credit data can therefore offer an important insight into how financial institutions, households and firms have responded to the financial market volatility. Indeed, previous episodes of heightened financial market uncertainty have been associated with large portfolio shifts into safe and liquid monetary assets. For the time being, however, there is little evidence that such shifts have influenced the dynamics of broad money and credit aggregates since the onset of financial market volatility in early August, although specific balance sheet items, such as holdings of money market fund shares/units, may have been strongly affected.","The rate of growth of bank loans to households and non-financial corporations has remained robust in recent months, tentatively suggesting that there is no impairment in credit supply. However, it cannot be excluded that the strong loan flows partly reflect the re-intermediation of some financing onto bank balance sheets given illiquidity in some segments of the asset-backed securities markets. Further data and analysis will be required to develop a more complete view of the impact of the financial market volatility on bank balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the information identified under the economic analysis with the outcome of the monetary analysis has fully confirmed the existence of upside risks to price stability over the medium term, with money and credit growth vigorous in the euro area, and against the background of sound economic fundamentals in the euro area. At the same time, given the continued uncertainty, additional information is needed before further conclusions for monetary policy can be drawn. Consequently, the Governing Council will monitor very closely all developments. Our monetary policy stands ready to counter upside risks to price stability, as required by our mandate. By acting in a firm and timely manner on the basis of our assessment, we will ensure that risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability, which is all the more important in the current context. As regards the financial markets, we will continue to pay great attention to developments over the period to come.","Turning to fiscal policy, the Governing Council welcomes the ECOFIN Council’s agreement to strengthen the preventive arm of the Stability and Growth Pact. The Governing Council also welcomes the recent confirmation by the ECOFIN Council of a reinforcement of its commitment to the full implementation of the Pact. In particular, the provisions of the preventive arm, including the call for a structural adjustment of at least 0.5% of GDP per annum, need to be adhered to by all countries with fiscal imbalances. In this regard, 2008 budget plans in a number of countries point to a pro-cyclical fiscal stance and an unwarranted relaxation of consolidation efforts. This gives rise to concern as consolidation shortfalls undermine in particular the Eurogroup agreement to achieve sound budgetary positions by 2010 at the latest.","With regard to structural reforms, the Governing Council stresses that a key effect of well-designed structural reforms is a sustainable improvement in the employment and income situation of workers and households. Reforms which increase the incentives for firms and individuals to invest in human capital tend to enhance overall labour demand and productivity. Reducing non-wage labour costs would also enhance employment and the net income levels of workers. Moreover, labour market regulations should not discourage firms from offering jobs, or workers from accepting them. It is encouraging to see that past labour market reforms have contributed to job creation and reduced unemployment. It is important that governments continue in this direction and do not reverse past reforms just at the point when they are starting to bear fruit. Moreover, the Governing Council reiterates its full support for all efforts which foster market flexibility and enhance competition. This also applies to the agricultural markets. Against the background of a marked increase in international food commodity prices, further liberalisation and reforms in EU agricultural markets would help to enhance their efficiency and benefit European consumers through lower prices.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The latest information has confirmed the existence of strong short-term upward pressure on inflation, with the HICP inflation rate reaching 3.0% in November. It has also fully confirmed our assessment that there are upside risks to price stability over the medium term. Against this background, and with money and credit growth remaining very vigorous in the euro area, the Governing Council stands ready to counter upside risks to price stability, as required by its mandate. The economic fundamentals of the euro area remain sound. However, the reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty about the potential impact on the real economy. We will therefore monitor very closely all developments. By acting in a firm and timely manner on the basis of our assessment, we will ensure that second-round effects and risks to price stability over the medium term do not materialise. Firmly anchoring medium and long-term inflation expectations in line with price stability is all the more important at times of financial market volatility and increased uncertainty. As regards the financial markets, we will continue to pay great attention to developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","According to Eurostat’s first estimate, the quarter-on-quarter growth rate of euro area real GDP in the third quarter of 2007 was 0.7%, in line with the earlier flash estimate. Domestic demand remained the main driver of economic growth in the third quarter, confirming the sustained nature of economic expansion in the euro area. The latest information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that economic growth has continued into the fourth quarter of this year, though probably at a more moderate pace than in the third quarter. Overall, the fundamentals of the euro area remain sound. Profitability has been sustained, employment growth has been robust and the unemployment rate has fallen to levels not seen for 25 years.","These factors are also reflected in the December 2007 Eurosystem staff macroeconomic projections. Annual real GDP growth is projected to lie in the range of 2.4% to 2.8% in 2007, and be between 1.5% and 2.5% in 2008, and between 1.6% and 2.6% in 2009. In comparison with the September ECB staff projections, the range projected for real GDP growth in 2008 has been revised slightly downwards, whereas for 2007 the new range lies within the upper part of the previous one. Available forecasts from international organisations broadly confirm this outlook.","The scenario of sustained real GDP growth broadly in line with trend potential is based on the expectation that the global economy will remain resilient, with the slowdown of economic growth in the United States partly offset by the continued strength of emerging market economies. External demand should therefore provide ongoing support to euro area exports and investment. Consumption growth should also contribute to economic expansion, in line with developments in real disposable income, as continued employment growth provides supportive conditions. That said, in view of the potential impact of ongoing financial market volatility and re-pricing of risk on the real economy, the level of uncertainty remains high.","In the Governing Council’s view, the risks surrounding this outlook for economic growth lie on the downside. They relate mainly to the potential for a broader impact from the ongoing reappraisal of risk in financial markets on financing conditions and confidence and on world and euro area growth, possible further oil and commodity price rises, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances.","As regards price developments, according to Eurostat’s flash estimate, the annual HICP inflation rate increased sharply again in November 2007, to 3.0% from 2.6% in October. Oil prices have risen strongly in recent months, and food prices have increased substantially, reflecting higher global demand. In addition, as emphasised on previous occasions, we are currently in the midst of a period in which unfavourable effects from energy prices are having a strong upward impact on annual HICP inflation rates, owing to the marked decline in oil prices a year ago.","Looking ahead, the HICP inflation rate is expected to remain significantly above 2% in the coming months, and is likely to moderate only gradually in the course of 2008. Hence, the period of temporarily high rates of inflation would be somewhat more protracted than previously expected. The December Eurosystem staff projections foresee annual HICP inflation to be between 2.0% and 2.2% in 2007, but then to rise to between 2.0% and 3.0% in 2008. For 2009, HICP inflation is projected to lie between 1.2% and 2.4%. Compared with the September 2007 ECB staff projections, the projected ranges for HICP inflation in 2007 and 2008 have shifted upwards. Forecasts from international organisations which incorporate recent inflation developments give a broadly similar picture.","These projections largely mirror the assumed path of oil and food prices, for which available futures prices suggest a deceleration in the course of next year. On the domestic side, unit labour cost growth is projected to increase over the projection horizon. In this context it is important to emphasise that the staff projections assume that recent oil and food price dynamics and their impact on HICP inflation will not have broadly-based second-round effects on wage-setting behaviour. This is a key assumption. A further key assumption is that growth in profit margins will moderate over the projection horizon. In combination, these two assumptions imply, in the context of the staff projections, a continuation of overall contained domestic cost pressures, which contributes to the moderation in inflation projected in 2009.","In the Governing Council’s view, risks to this medium-term outlook for price developments are fully confirmed to lie on the upside. These risks include the possibility of further rises in oil and agricultural prices , continuing the strong momentum observed in recent months, as well as increases in administered prices and indirect taxes beyond those foreseen thus far. Moreover, taking into account the existence of capacity constraints, the favourable momentum of real GDP growth observed over the past few quarters and the positive developments in labour markets, stronger than currently expected wage growth may emerge. Furthermore, an increase in pricing power in market segments with low competition could materialise. It is therefore crucial that all parties concerned meet their responsibilities and that second-round effects on wage and price-setting stemming from recent commodity price rises be avoided. To that end, any explicit or de facto indexation of nominal wages to prices should be eliminated.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Money and credit have both continued to grow vigorously in recent months. The annual growth rate of M3 in October, at 12.3%, is likely to have been influenced by a number of temporary factors, such as the flattening of the yield curve, the financial market turmoil and specific transactions associated with the restructuring of certain banking groups. However, even taking these special factors into account, the underlying rate of monetary expansion remains strong. Moreover, the sustained expansion of loans to the domestic private sector, which grew at an annual rate of 11.2% in October, points to the continued vigour of underlying monetary dynamics. Monetary developments therefore continue to require very careful monitoring, both to detect underlying trends associated with inflationary pressures at longer horizons and to better understand shorter-term dynamics.","Such monitoring will also provide a more complete picture of the response of the private sector to the increased volatility in financial markets. A broad assessment of underlying trends in money and credit growth is particularly important at present given recent financial market developments. Heightened financial volatility may influence the short-term behaviour of money-holders and thereby complicate the extraction of the underlying trend monetary developments. At the same time, monetary and credit data can also offer an important insight into how financial institutions, households and firms have responded to the financial market turmoil.","For the time being, however, there is little evidence that the financial market turbulence since early August has strongly influenced the dynamics of broad money and credit aggregates, although specific balance sheet items, such as holdings of money market fund shares/units, may have been affected. Indeed, the growth of bank loans to households and non-financial corporations has remained robust in recent months, which may suggest that the supply of credit has not been impaired. Further data and analysis will be required to develop a more complete view of the impact of the financial market developments on bank balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis fully confirms the assessment that there are upside risks to price stability over the medium term, in a context of vigorous money and credit growth and against the background of sound economic fundamentals in the euro area. At the same time, the reappraisal of risk in financial markets is still evolving and uncertainty about the potential impact on the real economy has continued. Consequently, the Governing Council will monitor very closely all developments. Our monetary policy stands ready to counter upside risks to price stability, as required by our mandate. In particular, for the recent increase in inflation to remain temporary, it is of the essence that no second-round effects materialise via an impact from current inflation rates on wage and price-setting behaviour. By acting in a firm and timely manner on the basis of our assessment, we will ensure that second-round effects and risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability. This is all the more important in the current context. As regards the financial markets, we will continue to pay great attention to developments over the coming weeks.","Turning to fiscal policy, the European Commission’s autumn 2007 economic forecast generally confirms the picture of improving budget balances in the euro area this year. However, progress with structural fiscal consolidation in countries with remaining budget imbalances is generally disappointing. This lack of ambition unnecessarily prolongs the correction of remaining fiscal deficits and could lead to negative surprises should the macroeconomic environment turn less favourable. In this context, Member States should meet the commitment they made in the Eurogroup’s Berlin agreement of April 2007, namely that most euro area members would achieve their medium-term objectives in 2008 or 2009, and all should aim for 2010 at the latest.","With regard to structural reforms, it is important that governments continue their efforts to make progress. The improvements in the employment situation over recent years show the fruits of past reforms. It is essential that the reform momentum to enhance competition, productivity growth and labour market flexibility is maintained and that there are no reversals of the reform process in the countries of the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our first press conference of 2008. Let me therefore wish you all a very Happy New Year. I would also like to take this opportunity to welcome Cyprus and Malta as countries which have adopted the euro as their currency. With Cyprus and Malta, the euro area now comprises 15 EU Member States. Accordingly, Mr Orphanides, the Governor of the Central Bank of Cyprus, and Mr Bonello, the Governor of the Central Bank of Malta, became members of the Governing Council on 1 January 2008.","Let me now report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. According to the latest information, strong short-term upward pressure on inflation has continued, with HICP inflation remaining at 3.1% in December. As regards the medium term, and in a context of very vigorous money and credit growth, our assessment of upside risks to price stability has been fully confirmed. The Governing Council remains prepared to act pre-emptively so that second-round effects and upside risks to price stability over the medium term do not materialise and, consequently, medium and long-term inflation expectations remain firmly anchored in line with price stability. Reflecting its mandate, such anchoring is of the highest priority to the Governing Council. The economic fundamentals of the euro area are sound. However, the ongoing reappraisal of risk in financial markets is still accompanied by uncertainty about its potential impact on the real economy and the risks surrounding the outlook for economic activity are on the downside. We will continue to monitor very closely all developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The latest information on economic activity suggests that quarterly growth at the turn of the year was at a more moderate pace than the quarter-on-quarter rate of 0.8% observed in the third quarter of 2007 (revised upwards from 0.7%). This assessment is in line with indicators for business and consumer confidence which, while declining over the past few months, generally remain at levels that continue to point to ongoing growth.","Our main scenario remains that of real GDP growth broadly in line with trend potential. The fundamentals of the euro area economy are sound, profitability has been sustained, employment growth has been robust and unemployment rates have fallen to levels not seen for 25 years. Consumption growth should therefore continue to contribute to economic expansion, in line with real disposable income, and investment growth should provide ongoing support. On the expectation that the global economy will, on balance, remain resilient – with the slowdown in economic growth in the United States being mitigated by the continued strength of emerging market economies – external demand should support euro area exports.","That said, uncertainty about the prospects for economic growth remains high and the risks surrounding the outlook for economic activity lie on the downside. The latter relate mainly to a potentially broader than currently expected impact of the ongoing reappraisal of risk in financial markets on financing conditions and economic sentiment, with a negative impact on world and euro area growth. Further downside risks stem from the scope for additional oil and other commodity price rises, concerns about protectionist pressures and the possibility of disorderly developments due to global imbalances.","With regard to price developments, according to Eurostat’s flash estimate the annual HICP inflation rate was 3.1% in December 2007, unchanged from November. This confirms the strong upward pressure on inflation in the short term, stemming mainly from strong increases in oil and food prices in recent months.","Looking ahead, the annual HICP inflation rate is expected to remain significantly above 2% in the coming months and is likely to moderate only gradually in the course of 2008. Hence, the period of temporarily high rates of inflation would be somewhat more protracted than previously expected. Moreover, it is important to stress that the expectation of a moderation in the rate of inflation – which is embedded in the December 2007 Eurosystem staff macroeconomic projections – assumes some reversal of the recent rises in commodity prices – in line with what is currently captured by futures prices – and, more fundamentally, that recent oil and food price dynamics and their impact on HICP inflation do not have broadly-based second-round effects on wage and price-setting behaviour.","Risks to this medium-term outlook for price developments are fully confirmed to lie on the upside. These risks include the possibility that stronger than currently expected wage growth may emerge, taking into account capacity constraints and the positive developments in labour markets. Furthermore, the pricing power of firms – notably in market segments with low competition – could be stronger than expected. At this juncture, it is imperative that all parties concerned meet their responsibilities and that second-round effects on wage and price-setting stemming from current inflation rates be avoided. In the view of the Governing Council, this is absolutely essential in order to preserve price stability in the medium run and thereby the purchasing power of all euro area citizens. The Governing Council is monitoring wage negotiations in the euro area countries with particular attention. Any indexation scheme of nominal wages to prices should be eliminated. Finally, further rises in oil and agricultural prices, continuing the strong upward trend observed in recent months, as well as increases in administered prices and indirect taxes beyond those foreseen thus far, could materialise.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Money and credit have both continued to grow vigorously in recent months. The annual growth rate of M3 in November, unchanged at 12.3%, is likely to have been influenced by a number of temporary factors, such as the flattening of the yield curve, the financial market turmoil and specific transactions associated with the restructuring of certain banking groups. Nonetheless, even taking these special factors into account, the underlying rate of monetary expansion remains strong. Moreover, the sustained expansion of loans to the domestic private sector, which grew at an annual rate of 11.0% in November, points to the continued vigour of underlying monetary dynamics. Monetary developments continue to require very careful monitoring, both to detect underlying trends associated with inflationary pressures at longer horizons and to form a better understanding of shorter-term monetary dynamics.","Such monitoring will also provide a more complete picture of the response of the private sector to the increased volatility in financial markets. A broad assessment of underlying trends in money and credit growth is particularly important at present given recent financial market developments. Heightened financial volatility may influence the short-term behaviour of money-holders and thereby complicate the extraction of the underlying trend monetary developments. At the same time, monetary and credit data can also offer an important insight into how financial institutions, households and firms have responded to the financial market turmoil.","For the time being, however, there is little evidence that the financial market turbulence since early August 2007 has strongly influenced the dynamics of broad money and credit aggregates. Indeed, the growth of bank loans to the domestic private sector has remained robust in recent months, which may suggest that the supply of credit has not been impaired thus far. The growth of M1 and household borrowing have moderated further over the past few quarters, reflecting the impact of higher key ECB interest rates since December 2005 rather than the influence of the financial turmoil. Borrowing by non-financial corporations remains very strong. Further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis fully confirms the assessment that there are upside risks to price stability over the medium term, in a context of very vigorous money and credit growth and sound economic fundamentals in the euro area. At the same time, the potential impact on the real economy of the ongoing reappraisal of risk in financial markets remains uncertain. Consequently, we will monitor very closely all developments. The Governing Council remains prepared to act pre-emptively so that second-round effects and upside risks to price stability do not materialise and, consequently, medium and long-term inflation expectations remain firmly anchored in line with price stability. Reflecting its mandate, such anchoring is of the highest priority to the Governing Council.","Turning to fiscal policy, most euro area countries have submitted their updated stability programmes. On this basis, after a reduction in the euro area aggregate deficit ratio in 2007, an increase in the ratio is projected for 2008 despite many countries not having achieved sound fiscal positions. There is a clear risk that some countries will fail to comply with the provisions of the preventive arm of the Stability and Growth Pact, thereby undermining the credibility of the Pact. In 2008 some countries with fiscal imbalances will consolidate by less than the required minimum of 0.5% of GDP in structural terms. In these countries, much more ambitious policies will be necessary to ensure that they achieve their medium-term objectives by 2010 at the latest, in accordance with their commitment of April 2007.","With regard to structural reforms, the new three-year cycle of the Lisbon Strategy for growth and jobs has started. While the achievements made over the last three years of the relaunched Strategy are encouraging, it is important that governments step up their reform efforts to deliver enhanced knowledge and innovation, competitiveness and labour market flexibility. Such reforms are crucial to raising productivity and fostering employment opportunities in the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. This decision reflects our assessment that risks to price stability over the medium term are on the upside, in a context of very vigorous money and credit growth. The current short-term upward pressure on inflation must not spill over to the medium term. The firm anchoring of inflation expectations over the medium and long term is of the highest priority to the Governing Council, reflecting its mandate. Against this background, the Governing Council remains committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy. While the economic fundamentals of the euro area are sound, incoming data have confirmed that the risks surrounding the outlook for economic activity lie on the downside. We will continue to monitor very closely all developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The latest information on economic activity around the turn of the year points to a more moderate pace of growth in the euro area than the quarter-on-quarter rate of 0.8% observed in the third quarter of 2007. This assessment is in line with indicators for business and consumer confidence which, while having declined over the past few months, overall remain consistent with ongoing growth.","Looking ahead, while the slowdown in the economies of some of the euro area’s major trading partners is likely to have an impact on euro area real GDP growth in 2008, both domestic and foreign demand are expected to support ongoing growth. This assessment is broadly in line with available forecasts from private and public-sector sources. The fundamentals of the euro area economy remain sound. The euro area economy does not have major imbalances Profitability has been sustained and unemployment rates have fallen to levels not seen for 25 years. As a result of the improved economic conditions and wage moderation, the number of people employed and labour force participation have increased significantly. Consumption growth should therefore continue to contribute to economic expansion, in line with real disposable income, and investment growth should provide ongoing support.","That said, uncertainty about the prospects for economic growth is unusually high and the risks surrounding the outlook for economic activity have been confirmed to lie on the downside. Risks relate mainly to a potentially broader than currently expected impact of financial market developments on financing conditions and economic sentiment, with negative effects on world and euro area growth. Further downside risks stem from the scope for additional oil and other commodity price rises, concerns about protectionist pressures and the possibility of disorderly developments due to global imbalances.","With regard to price developments, according to Eurostat’s flash estimate the annual HICP inflation rate was 3.2% in January 2008, compared with 3.1% in December 2007. This confirms the continued strong upward pressure on inflation in the short term, stemming mainly from strong increases in commodity prices, in particular oil and food prices, in recent months.","Looking ahead, the annual HICP inflation rate will most likely remain significantly above 2% in the coming months and moderate only gradually in the further course of 2008. This confirms our expectation of a protracted period of temporarily high rates of inflation. Moreover, it is important to stress that the moderation in the rate of inflation which is embedded in the December 2007 Eurosystem staff macroeconomic projections is based on the assumption that the recent rises in commodity prices will be partly reversed, in line with futures prices. More fundamentally, the projections assume that recent oil and food price dynamics and their impact on HICP inflation do not have broadly-based second-round effects on wage and price-setting behaviour.","Risks to this medium-term outlook for price developments are confirmed to lie on the upside. These risks include the possibility that stronger than currently expected wage growth may emerge, taking into account high capacity utilisation and tight labour market conditions. Furthermore, the pricing power of firms, notably in market segments with low competition, could be stronger than expected. At this juncture, it is therefore imperative that all parties concerned meet their responsibilities and that second-round effects on wage and price-setting stemming from current inflation rates be avoided. In the view of the Governing Council, this is of key importance in order to preserve price stability in the medium run and thereby the purchasing power of all euro area citizens. The Governing Council is monitoring wage negotiations in the euro area with particular attention. Indexation of nominal wages to the consumer price index should be avoided. Finally, further rises in oil and agricultural prices, continuing the strong upward trend observed in recent months, as well as increases in administered prices and indirect taxes beyond those foreseen thus far pose upside risks to the inflation outlook.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Annual M3 growth, although declining somewhat in December, remained very vigorous at 11.5%, whereas M1 growth continues to moderate, reflecting the dampening impact of higher interest rates. Broad money dynamics in recent quarters are likely to have been influenced by a number of temporary factors, notably the flattening of the yield curve, which may have supported some substitution into monetary assets. Overall, taking these special factors into account, a broad-based assessment of the latest data confirms that the underlying rate of monetary expansion remains strong.","This conclusion is supported by the sustained expansion of loans to the domestic private sector, which grew at an annual rate of 11.1% in December. Although the growth of household borrowing has moderated further over the past few quarters, reflecting the impact of higher key ECB interest rates since December 2005 and cooling housing markets in several parts of the euro area, the growth of loans to non-financial corporations has remained very robust. Bank borrowing by euro area non-financial corporations was 14.4% higher at the end of December 2007 than a year earlier.","For the time being, there is little evidence that the financial market turbulence since early August 2007 has strongly influenced the dynamics of broad money and credit aggregates. In particular, according to the available data, increased financial market volatility has not led to substantial portfolio shifts into monetary assets, as was the case between 2001 and 2003. Notwithstanding the tightening of credit standards reported in the bank lending survey for the euro area, continued strong loan growth suggests that the supply of bank credit in the euro area has not been significantly impaired by the financial turmoil thus far. Further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment that there are upside risks to price stability over the medium term, in a context of very vigorous money and credit growth and sound economic fundamentals in the euro area. The impact of the ongoing reappraisal of risk in financial markets on the real economy is still surrounded by unusually high uncertainty. Incoming data have confirmed that the risks surrounding the outlook for economic activity lie on the downside. Accordingly, we will monitor very closely all developments. The Governing Council remains committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. It is paramount that medium and long-term inflation expectations remain firmly anchored in line with price stability. Reflecting its mandate, such anchoring is of the highest priority to the Governing Council.","With respect to fiscal policies, a discretionary fiscal loosening in EU countries should be avoided. There is ample evidence that activist fiscal policies were not effective in stabilising European economies but rather led to sustained increases in the ratios of government expenditure and debt to GDP. Allowing the free operation of automatic stabilisers in countries with strong fiscal positions and safeguarding the long-term sustainability of public finances are the best contributions that fiscal policy can make to macroeconomic stability. Countries with fiscal imbalances are urged to make further progress with consolidation, in line with the requirements of the Stability and Growth Pact. There is a clear risk that some countries will fail to comply with the provisions of the preventive arm of the Pact, thereby undermining its credibility.","Structural reforms help economies to adjust to adverse shocks, foster productivity growth and increase employment and competition, thereby also helping to reduce inflationary pressures. In particular, enhancing competition in the services sectors and network industries, as well as applying adequate measures in the EU agricultural market, would be conducive to price stability in the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me report on the outcome of our meeting, which was also attended by Mr Bajuk, President of the ECOFIN Council, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The latest information has confirmed the existence of strong short-term upward pressure on inflation. It has also confirmed the assessment that there are upside risks to price stability over the medium term, in a context of very vigorous money and credit growth. The economic fundamentals of the euro area are sound. Incoming macroeconomic data point to moderating but ongoing real GDP growth. Yet the level of uncertainty resulting from the turmoil in financial markets remains high. Against this background, we emphasise that maintaining price stability in the medium term is our primary objective in accordance with our mandate. Indeed, the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council. We believe that the current monetary policy stance will contribute to achieving this objective. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We will continue to monitor very closely all developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The latest information on economic activity confirms the picture of moderating growth around the turn of the year. According to Eurostat’s first estimate, the quarter-on-quarter growth rate of euro area real GDP in the fourth quarter of 2007 was 0.4%, following 0.8% in the previous quarter. Surveys of business and consumer confidence, which have followed a downward trend since the summer of 2007, overall remain consistent with ongoing growth.","Looking ahead, in 2008 both domestic and foreign demand are expected to support ongoing real GDP growth in the euro area, albeit at lower rates than during 2007. The fundamentals of the euro area economy remain sound and the euro area economy does not suffer from major imbalances. While being dampened by the global slowdown, investment growth should provide ongoing support, as capacity utilisation is high and profitability has been sustained. At the same time, as a result of the improved economic conditions and wage moderation, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. While being dampened by higher commodity prices, consumption growth should continue to contribute to economic expansion, in line with rising employment.","These factors are also reflected in the March 2008 ECB staff macroeconomic projections. Annual real GDP growth is projected to lie in the range of 1.3% to 2.1% in 2008, and to be between 1.3% and 2.3% in 2009. In comparison with the December 2007 Eurosystem staff macroeconomic projections, the ranges projected for real GDP growth in 2008 and 2009 have been revised downwards, reflecting weaker global demand, stronger pressure from commodity prices and less favourable financing conditions than were foreseen in December. Available forecasts from international organisations broadly confirm this outlook.","In the view of the Governing Council, uncertainty about the prospects for economic growth remains unusually high. Downside risks to the outlook for economic activity continue to exist. They relate mainly to a potentially broader than currently expected impact of financial market developments. Further downside risks stem from the scope for additional commodity price rises, protectionist pressures and the possibility of disorderly developments owing to global imbalances.","With regard to price developments, according to Eurostat’s first estimate, the annual HICP inflation rate was 3.2% in February 2008, unchanged from January. This confirms the strong upward pressure on inflation in the short term, stemming mainly from the increases in energy and food prices in recent months. Looking ahead, we expect a more protracted period of relatively high rates of inflation than we did a few months ago. The annual HICP inflation rate will most likely remain significantly above 2% in the coming months and moderate only gradually later in the year.","The March 2008 ECB staff macroeconomic projections foresee annual HICP inflation of between 2.6% and 3.2% in 2008, and between 1.5% and 2.7% in 2009. Compared with the December 2007 Eurosystem staff macroeconomic projections, the projected ranges for HICP inflation have shifted upwards, mainly reflecting significant additional increases in food and energy prices.","It is important to recall that these staff projections are based on a number of assumptions which are of a purely technical nature and unrelated to policy intentions. In particular, the technical assumptions for short-term interest rates are taken from market expectations as at mid-February.","Moreover, it should be noted that the projections are based on the assumptions that the recent dynamism in commodity prices will diminish over the projection horizon, in line with futures prices, and that pressure from labour costs and profit margins will be limited.","In the view of the Governing Council, the risks to the outlook for inflation over the medium term are on the upside. These risks include further rises in oil and agricultural prices, continuing the strong upward trend observed in recent months. Furthermore, they include the possibility that stronger than currently expected wage growth may emerge, taking into account high capacity utilisation and tight labour market conditions. Moreover, the pricing power of firms, notably in market segments with low competition, could be stronger than expected. Increases in administered prices and indirect taxes beyond those foreseen thus far also pose upside risks to the inflation outlook.","At this juncture, it is imperative that all parties concerned meet their responsibilities and that second-round effects on price-setting, on the one hand, and on wages, on the other hand, stemming from current inflation rates be avoided. In the view of the Governing Council, this is of key importance in order to preserve price stability in the medium term and thereby the purchasing power of all euro area citizens. The Governing Council is monitoring wage negotiations in the euro area with particular attention. In this context, the Governing Council is concerned about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Annual M3 growth remained very vigorous at 11.5% in January, supported by the continued strong growth of MFI loans to the private sector. A number of temporary factors suggest that M3 growth currently overstates the pace of the underlying monetary expansion. The relatively flat yield curve in particular has made holding monetary assets more attractive. However, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.","The growth of household borrowing has moderated over recent months, reflecting the impact of higher key ECB interest rates since December 2005 and cooling housing markets in several parts of the euro area. However, the growth of loans to non-financial corporations has remained very robust. Bank borrowing by euro area non-financial corporations grew at an annual rate of 14.6% in the year to January 2008. Overall, bank loans to the domestic private sector have grown at around 11% on an annual basis for the past two years.","For the time being, there is little evidence that the financial market turbulence since early August 2007 strongly influenced the overall dynamics of broad money and credit aggregates up to January 2008. In addition, according to the available data, the turmoil has not led to substantial portfolio shifts into monetary assets, as were observed between 2001 and 2003. Notwithstanding the tightening of credit standards reported in the bank lending survey for the euro area, continued strong loan growth to non-financial corporations suggests that the supply of bank credit to firms in the euro area has not been significantly impaired by the financial turmoil thus far. Further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis fully confirms the assessment that there are upside risks to price stability over the medium term, in a context of very vigorous money and credit growth. The economic fundamentals of the euro area are sound. Incoming macroeconomic data point to moderating but ongoing real GDP growth. Yet the level of uncertainty resulting from the turmoil in financial markets remains high. We emphasise that the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council. We believe that the current monetary policy stance will contribute to achieving this objective. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We will continue to monitor very closely all developments over the coming weeks.","Regarding fiscal policies, the Governing Council welcomes the fact that the Berlin Eurogroup agreement of April 2007, including the consolidation targets, was confirmed in the ECOFIN Council’s opinions on the latest stability programme updates. There is no justification for delaying structural fiscal consolidation in countries with remaining fiscal imbalances. On the contrary, the challenges ahead call for particularly prudent and stability-oriented fiscal policies to support private sector confidence. Achieving and maintaining sound fiscal positions will also allow the free operation of automatic stabilisers and contribute to the smooth functioning of Economic and Monetary Union.","Structural reforms would not only be beneficial for employment and potential growth, but would also help to reduce inflationary pressures. Enhancing competition, especially in services and network industries, is essential at this juncture to support price stability and enhance productivity growth. Similarly, administered prices, indirect taxes, minimum wage legislation and public sector wage-setting should not add to inflationary pressures in the economy.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The latest information has confirmed the existence of strong short-term upward pressure on inflation. In fact, we are experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices. The latest information also clearly confirms our assessment of prevailing upside risks to price stability over the medium term, in a context of continuing very vigorous money and credit growth. The economic fundamentals of the euro area are sound. Incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. However, the level of uncertainty resulting from the turmoil in financial markets remains unusually high and tensions may last longer than initially expected. Against this background, we emphasise that maintaining price stability in the medium term is our primary objective in accordance with our mandate. The firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council and there is certainly no room for complacency in this regard. We believe that the current monetary policy stance will contribute to achieving our objective. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We will continue to monitor very closely all developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","According to Eurostat’s second estimate, quarter-on-quarter real GDP growth in the fourth quarter of 2007 was 0.4%, following 0.7% in the previous quarter. The latest information on economic activity also underpins previous expectations of moderate but ongoing growth in the first quarter of 2008. Overall, the euro area economy has sound fundamentals and does not suffer from major imbalances.","Looking ahead, both domestic and foreign demand are expected to support ongoing real GDP growth in the euro area in 2008, albeit to a lesser extent than during 2007. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from strong growth in emerging economies. This should continue to support euro area external demand. Meanwhile, investment growth in the euro area should provide ongoing support to economic activity, as capacity utilisation is high, profitability has been sustained and there are no significant signs of supply constraints on bank loans. At the same time, as a result of the improved economic conditions and wage moderation, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. While being dampened by the impact of higher energy and food prices on purchasing power, consumption growth should continue to contribute to economic expansion, in line with real disposable income growth.","The uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. The risks relate mainly to the financial market turbulence, which could last longer than initially thought and could have a broader than currently expected impact on the real economy. Moreover, downside risks also stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices, as well as from protectionist pressures and the possibility of disorderly developments owing to global imbalances.","With regard to price developments, according to Eurostat’s flash estimate, the annual HICP inflation rate was 3.5% in March 2008, after 3.3% in February. This outturn confirms the ongoing strong and lately further increasing short-term upward pressure on inflation, resulting largely from sharp increases in energy and food prices in recent months. Looking ahead, the annual HICP inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008. Accordingly, we are currently experiencing a rather protracted period of temporarily high annual rates of inflation.","The risks to the outlook for inflation over the medium term remain clearly on the upside. These risks include the possibility of further rises in energy and food prices, as well as of increases in administered prices and indirect taxes beyond those foreseen thus far. Most importantly, there is a risk that price and wage-setting behaviour could add to inflationary pressures. In particular, the pricing power of firms, notably in market segments with low competition, may prove stronger than currently expected, and stronger than expected wage growth may emerge, taking into account high capacity utilisation and tight labour market conditions.","Against this background, it is imperative that all the parties concerned meet their responsibilities. Second-round effects stemming from the impact of higher energy and food prices on wage and price-setting behaviour must be avoided. In the view of the Governing Council, this is of key importance in order to preserve price stability in the medium term and thereby the purchasing power of all euro area citizens. The Governing Council is monitoring wage negotiations in the euro area with particular attention. In this context, the Governing Council is concerned about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Annual M3 growth remained very vigorous at 11.3% in February, supported by the continued strong growth of MFI loans to the private sector. While annual M1 growth has moderated further in recent months, as higher short-term interest rates have increased the opportunity cost of holding the most liquid components of M3, the growth of time deposits remains extremely strong. This reflects the relatively flat yield curve, which has made it more attractive to hold monetary assets remunerated at close to market rates than to hold riskier, longer-maturity instruments. Overall, the impact of the flat yield curve and a number of other temporary factors suggest that annual M3 growth currently overstates the pace of the underlying monetary expansion. However, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.","The growth of household borrowing has moderated over recent months, reflecting the impact of higher key ECB interest rates since December 2005 and cooling housing markets in several parts of the euro area. However, the growth of loans to non-financial corporations has remained very robust. Bank borrowing by euro area non-financial corporations grew at an annual rate of 14.8% in the year to February 2008. Overall, bank loans to the domestic private sector have grown at around 11% on an annual basis for the past two years.","For the time being, there is little evidence that the financial market turbulence seen since early August 2007 has strongly influenced the overall dynamics of broad money and credit aggregates. Notwithstanding the tightening of credit standards reported in the bank lending survey for the euro area, continued strong loan growth to non-financial corporations suggests that the supply of bank credit to firms in the euro area has not been significantly impaired by the financial turmoil thus far. Further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment that upside risks to price stability prevail over the medium term, in a context of very vigorous money and credit growth and with no significant signs of supply constraints on bank loans to households and non-financial corporations. The economic fundamentals of the euro area are sound. Incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. However, the level of uncertainty resulting from the turmoil in financial markets remains unusually high and tensions may last longer than initially expected. Against this background, we emphasise that the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council. We believe that the current monetary policy stance will contribute to achieving this objective. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We will continue to monitor very closely all developments over the coming weeks.","Regarding fiscal policies, the intentions reflected in the latest round of stability programmes imply a rise in the euro area general government deficit ratio in 2008. Further fiscal pressures are likely to arise as overly optimistic macroeconomic assumptions are already being revised downwards and political demands for fiscal loosening are increasing. In this situation, countries with fiscal imbalances are urged to make further progress with structural consolidation, in line with the requirements of the Stability and Growth Pact. At the current juncture, particularly prudent and stability-oriented fiscal policies would also contribute to containing inflationary pressures.","Turning to structural reforms, we welcome the launch of the 2008-10 cycle of the renewed Lisbon strategy for growth and jobs by the European Council. The favourable labour market trends in the euro area suggest that economic reforms are paying off. However, many challenges remain as overall employment is still below the Lisbon target of 70% and unemployment is still unacceptably high. Moreover, productivity growth remains weak, constraining general income growth. Therefore, we strongly encourage euro area countries to increase reform efforts, in particular to foster market integration and to reduce rigidities in product and labour markets that restrict competition, employment flexibility and wage differentiation, and we support them in these efforts. They would not only promote employment and support potential growth, but would also contribute to moderating price pressures.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference here in Athens. I would like to thank Governor Garganas for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council.","Let me report on the outcome of our meeting, which was also attended by Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. Inflation rates have risen significantly since the autumn, owing mainly to increases in energy and food prices. As we have said on previous occasions, inflation rates are expected to remain high for a rather protracted period of time, before gradually declining again. The latest information confirms our assessment that upside risks to price stability prevail over the medium term, in a context of continuing very vigorous money and credit growth. At the same time, the economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. However, the level of uncertainty resulting from the turmoil in financial markets remains unusually high and tensions still persist. Against this background, we emphasise that maintaining price stability in the medium term is our primary objective in accordance with our mandate. The firm anchoring of medium to longer-term inflation expectations is of the highest priority. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We believe that the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the coming weeks.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The latest data and survey information on economic activity confirm previous expectations of moderate but ongoing growth in the first half of 2008. In particular, industrial production data for the first months of the year showed resilience, while economic sentiment generally continued to soften. Overall, the euro area economy has sound fundamentals and does not suffer from major imbalances.","In line with available forecasts, both domestic and foreign demand are expected to support ongoing real GDP growth in the euro area in 2008, albeit to a lesser extent than during 2007. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from strong growth in emerging economies. This should continue to support euro area external demand. Meanwhile, investment growth in the euro area should provide ongoing support to economic activity, as capacity utilisation remains solid and profitability in the non-financial corporate sector has been sustained. At the same time, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. This supports real disposable income and thus consumption growth, although purchasing power is being dampened by the impact of higher energy and food prices.","The uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. In particular, risks relate to the potential for the financial market turbulence to have a more negative impact on the real economy than previously anticipated. Moreover, downside risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. Risks also arise from protectionist pressures and the possibility of disorderly developments owing to global imbalances.","With regard to price developments, annual HICP inflation has remained above 3% for the past six months. According to Eurostat’s flash estimate, it was 3.3% in April 2008. This outturn confirms the ongoing strong short-term upward pressure on inflation, resulting largely from sharp increases in energy and food prices at the global level in recent months.","Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008. Accordingly, we are currently experiencing a rather protracted period of high annual rates of inflation. In order to ensure that current high inflation rates remain temporary, it is imperative that they do not become entrenched in longer-term expectations or lead to broadly based second-round effects in wage and price-setting.","The risks to the outlook for inflation over the medium term remain clearly on the upside. These risks include the possibility of further rises in energy and food prices, as well as of increases in administered prices and indirect taxes beyond those foreseen thus far. Most importantly, there is a risk that price and wage-setting behaviour could add to inflationary pressures. In particular, the pricing power of firms, notably in market segments with low competition, may prove stronger than currently expected. Moreover, higher than expected wage growth may emerge, taking into account high capacity utilisation, tight labour market conditions and the risk of second-round effects owing to the high level of current inflation rates.","Against this background, it is imperative that all the parties concerned, in both the private and the public sector, meet their responsibilities. Wage-setting needs to take into account productivity developments, the still high level of unemployment in many economies, and price competitiveness positions. Moderate labour cost increases are particularly necessary in countries which have lost price competitiveness in recent years. Second-round effects stemming from the impact of higher energy and food prices on price and wage-setting behaviour must be avoided. In this context, the Governing Council is concerned about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided. The Governing Council is monitoring wage negotiations in the euro area with particular attention. In the view of the Governing Council, continued responsible wage agreements are of key importance in order to preserve price stability in the medium term and thereby the purchasing power of all euro area citizens.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Annual M3 growth remained very vigorous at 10.3% in March, supported by the continued strong growth of MFI loans to the private sector. At the same time, annual M1 growth continued to moderate in March, reflecting higher short-term interest rates which encouraged further shifts from overnight into time deposits. While the impact of the flat yield curve and other temporary factors suggest that annual M3 growth currently overstates the underlying pace of monetary expansion, nonetheless, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.","The growth of household borrowing has moderated over recent months, reflecting the impact of higher short-term interest rates and cooling housing markets in several parts of the euro area. However, the growth of loans to non-financial corporations has remained very robust. While some future moderation can be expected in the light of tightening financing conditions and slower economic growth, bank borrowing by euro area non-financial corporations grew at an annual rate of 15.0% in the year to March 2008, and the flow of loans in recent months has been strong.","For the time being, there is little evidence that the financial market turbulence seen since early August 2007 has strongly influenced the development of broad money and loans. Continued strong loan growth to non-financial corporations suggests that the availability of bank credit to euro area firms has not been significantly impaired by the financial turmoil thus far. Further data and analysis will be required in order to obtain a more complete picture of the impact of the financial market developments on banks’ balance sheets, financing conditions and money and credit growth.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment that upside risks to price stability prevail over the medium term, in a context of very vigorous money and credit growth and with no significant signs of supply constraints on bank loans. The economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. However, the level of uncertainty resulting from the turmoil in financial markets remains high. Against this background, we emphasise that the firm anchoring of medium to longer-term inflation expectations is of the highest priority to the Governing Council. We believe that the current monetary policy stance will contribute to achieving this objective. The Governing Council remains strongly committed to preventing second-round effects and the materialisation of upside risks to price stability over the medium term. We will continue to monitor very closely all developments over the coming weeks.","Regarding fiscal policies, the latest forecast by the European Commission points to a rise in the euro area general government deficit ratio in 2008, followed by a further small increase in 2009. This deterioration in part reflects a less favourable economic environment and a likely reversal of windfall revenues accrued in past years. However, it also reflects a standstill in fiscal consolidation and new deficit-increasing measures in a number of countries with fiscal imbalances, including some with high deficits. For several countries, the attainment of the country-specific medium-term objectives by 2010 at the latest, which is the commitment made by euro area governments in Berlin in April 2007, is clearly at risk. In these countries, much more ambitious policies are imperative. For all countries, prudent fiscal policies would also help to counteract current inflationary pressures.","At the current juncture, it is also important to reinforce the structural reform agenda, in particular with a view to fostering market integration and to reducing rigidities in product and labour markets. Policy initiatives aimed at enhancing competition in market segments with low competition, such as services and energy, would allow pricing behaviour to adjust and thus contribute to lower inflation pressures. Furthermore, policies to increase trend productivity growth would contribute to smaller unit labour cost increases and ultimately also to higher employment.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. This week we celebrated the tenth anniversary of the ECB, marking an important milestone in the development of this institution and of the single monetary policy. On that occasion I expressed my sincere thanks to all those who have helped to build a solid foundation for the euro. Let me also extend these thanks to you who play such an important role in transmitting our decisions and explanations to the financial markets and to the public at large.","We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. At the same time, we noted that risks to price stability over the medium term have increased further. Inflation rates have risen significantly since the autumn of last year, owing mainly to strong increases in energy and food prices. HICP inflation is now expected to remain high for a more protracted period than previously thought. Upside risks to price stability over the medium term are also confirmed by the continuing very vigorous money and credit growth and the absence of significant constraints on bank loan supply up to now. At the same time, the economic fundamentals of the euro area are sound. Against this background, we emphasise that maintaining price stability in the medium term is our primary objective in accordance with our mandate. The Governing Council is monitoring very closely all developments. It is in a state of heightened alertness. By acting in a firm and timely manner, we will prevent second-round effects and ensure that risks to price stability over the medium term do not materialise. It is our strong determination to secure a firm anchoring of medium and long-term inflation expectations in line with price stability.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","At a quarter-on-quarter rate of 0.8%, real GDP growth in the first quarter of 2008 was well above expectations. In part, this strength reflected temporary factors, notably the unusually mild winter in many parts of Europe, which appears to have boosted construction activity. However, the high growth rate in the first quarter might be partly offset in the second. It is therefore more appropriate, in order to avoid being misguided by highly volatile quarterly results, to evaluate the first two quarters of 2008 together.","In line with available forecasts, both domestic and foreign demand are expected to support ongoing real GDP growth in the euro area in 2008, albeit to a lesser extent than during 2007. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from continued robust growth in emerging economies. This should support euro area external demand. The fundamentals of the euro area economy remain sound, and the euro area does not suffer from major imbalances. Against this background, we expect investment growth in the euro area to provide ongoing support to economic activity, as capacity utilisation remains solid and profitability in the non-financial corporate sector has been sustained. Moreover, employment and labour force participation have increased significantly, and unemployment rates have fallen to levels not seen for 25 years. These developments support disposable income, although purchasing power is being dampened by the impact of higher energy and food prices.","This outlook is also reflected in the June 2008 Eurosystem staff macroeconomic projections. The projections foresee average annual real GDP growth in a range between 1.5% and 2.1% in 2008 and between 1.0% and 2.0% in 2009. In comparison with the March ECB staff projections, the current range projected for real GDP growth in 2008 is within the upper part of the range published in March 2008, mainly as a consequence of the better than expected outcome in the first quarter. For 2009, the range has been adjusted downwards, following the increase in commodity prices over recent months. The year-on-year growth rates which I have just mentioned need to be interpreted with particular caution on this occasion. While the annual rates suggest that growth may be weaker in 2009 than in 2008, they mask the fact that on a quarterly basis real GDP growth is projected to reach a trough in 2008, before gradually recovering thereafter. In order not to draw the wrong conclusions about the growth dynamics implied in the staff projections it is important to keep this distinction in mind.","In the Governing Council’s view, the uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. In particular, risks continue to relate to the potential for the financial market turbulence to have a more negative impact on the real economy than anticipated. Moreover, downside risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. Risks also arise from concerns about the emergence of protectionist pressures and the possibility of disorderly developments owing to global imbalances.","With regard to price developments, annual HICP inflation has remained above 3% for the past seven months. According to Eurostat’s flash estimate, it was 3.6% in May 2008. This confirms the more persistent current upward pressures on euro area inflation, resulting largely from sharp increases in energy and food prices at the global level in recent months.","Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain above 3% for some time to come, before moderating only gradually in 2009. We are thus currently experiencing a protracted period of high annual rates of inflation, which is likely to be more persistent than previously anticipated.","Consistent with this view, the Eurosystem staff projections foresee average annual HICP inflation at between 3.2% and 3.6% in 2008 and between 1.8% and 3.0% in 2009. Compared with the March 2008 ECB staff projections, the ranges projected for inflation in 2008 and 2009 are markedly higher, reflecting mainly higher oil and food prices and increasingly inflationary pressures in the services sector.","In this context, it is important to recall the conditional nature of the Eurosystem staff projections. They are based on a number of assumptions which are of a purely technical nature and unrelated to policy intentions. In particular, the technical assumptions for short-term interest rates are taken from market expectations as at mid-May. Moreover, it should be noted that the projections are based on the assumption that the recent dynamism in oil and non-oil commodity prices will diminish over the projection horizon, in line with futures prices. A further crucial assumption is that there will be no broad-based second-round effects on wages.","In the Governing Council’s view, at the policy-relevant medium-term horizon risks to the outlook for prices remain clearly on the upside and have increased further These risks include notably the possibility of further increases in energy and food prices, as well as of increases in administered prices and indirect taxes beyond those foreseen thus far. It is also a strong concern that price and wage-setting behaviour could add to inflationary pressures. The pricing power of firms, particularly in market segments with low competition, such as parts of the services sector, may prove stronger than currently expected. Moreover, higher than expected wage growth may emerge, taking into account high capacity utilisation, tight labour market conditions and the risk of second-round effects. The Governing Council is monitoring wage negotiations and price-setting behaviour in the euro area with particular attention.","Against this background, it is imperative to secure that medium to longer-term inflation expectations remain firmly anchored in line with price stability. All parties concerned, in both the private and the public sector, must meet their responsibilities. Wage-setting needs to take into account productivity developments, the still high level of unemployment in many economies, and price competitiveness positions. Moderate labour cost increases are particularly necessary in countries which have lost price competitiveness in recent years. Broadly based second-round effects stemming from the impact of higher energy and food prices on price and wage-setting behaviour must be avoided. In this context, the Governing Council is concerned about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Annual M3 growth remained very vigorous in April, supported by the continued strong growth of MFI loans to the private sector. While the impact of the flat yield curve and other temporary factors suggest that annual M3 growth continues to overstate the underlying pace of monetary expansion, nonetheless, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.","Annual M1 growth has continued to moderate in recent months, reflecting higher short-term interest rates which have encouraged further shifts from overnight into time deposits. The moderation in the growth of household borrowing also reflects the dampening impact of higher short-term interest rates, as well as cooling housing markets in several parts of the euro area. However, the growth of loans to non-financial corporations has remained very robust. While some moderation can be expected in the future in the light of tightening financing conditions and slower economic growth, bank borrowing by euro area non-financial corporations grew at an annual rate of 14.9% in April 2008, and the flow of loans in recent months has been strong.","The monetary analysis has helped to support the necessary medium-term orientation of monetary policy in the face of the ongoing financial turmoil. From this perspective, the monetary analysis points to upside risks to price stability at longer horizons. Moreover, a thorough assessment of the monetary counterparts suggests that, as yet, the availability of bank credit to households and non-financial corporations has not been significantly affected by the turmoil.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment that upside risks to price stability prevail over the medium term, in a context of very vigorous money and credit growth and the absence of significant constraints on bank loan supply up to now. In fact, we noted that risks to price stability over the medium term have increased further. The economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate but ongoing real GDP growth. Against this background, the Governing Council is monitoring very closely all developments. It is in a state of heightened alertness. By acting in a firm and timely manner, we will prevent second-round effects and ensure that risks to price stability over the medium term do not materialise. Securing a firm anchoring of medium and long-term inflation expectations in line with price stability is of the essence.","Regarding fiscal policy, the Governing Council welcomes the spring 2008 orientations for euro area fiscal policies agreed by the Eurogroup ministers on 13 May 2008. Many euro area governments still need to implement much more ambitious policies to ensure that their country-specific medium-term budgetary objectives are attained by 2010 at the latest, as agreed in Berlin in April 2007. Achieving and maintaining sound structural fiscal positions is imperative to create scope for the free working of automatic stabilisers in all euro area countries and will help to prepare for the budgetary costs of population ageing. The steady pursuit of prudent and efficient fiscal policies would also help to limit current inflationary pressures and would increase potential growth and employment.","As regards structural reforms, the Governing Council reiterates its full support for all efforts to enhance competition, increase productivity and foster market flexibility. Against the background of a marked increase in international food commodity prices, removing impediments to competition at the various stages of the food supply chain in the retail and distribution sectors would benefit European consumers through lower prices. The ongoing “health check” of the EU common agricultural policy is welcomed, as are the efforts to limit upward pressure on agricultural prices through biofuels policies. A successful conclusion of the Doha round of world trade negotiations should also help to improve the functioning of global trade in general and of agricultural markets in Europe and worldwide in particular. Tax policies are not an appropriate means to counter commodity price increases, be it oil or non-oil commodities, as this would send wrong signals to producers and consumers alike and would distort markets.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to increase the key ECB interest rates by 25 basis points. This decision was taken to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term. HICP inflation rates have continued to rise significantly since the autumn of last year. They are expected to remain well above the level consistent with price stability for a more protracted period than previously thought. Moreover, continued very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply in a context of ongoing financial market tensions confirm our assessment of upside risks to price stability over the medium term. At the same time, while the latest data confirm the expected weakening of real GDP growth in mid-2008 after exceptionally strong growth in the first quarter, the economic fundamentals of the euro area are sound. Against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability. This will preserve purchasing power in the medium term and continue to support sustainable growth and employment in the euro area. On the basis of our current assessment, the monetary policy stance following today’s decision will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis. Information that has become available since the June press conference confirms our previous expectation of rather weak real GDP growth in the second quarter of 2008, in part as a technical counter-reaction to the strong quarter-on-quarter increase of 0.8% in the first quarter. As we have stressed previously, the quarterly growth rates for the first half of this year have been subject to strong temporary and compensatory factors, notably weather-related effects on the profile of construction activity. Therefore, in order to assess the underlying momentum of euro area economic activity and to avoid being misguided by highly volatile quarterly outturns, it is necessary to evaluate the first two quarters of 2008 together. Interpreted on this basis, the information available remains broadly in line with our expectation of moderate ongoing growth.","Looking ahead, both domestic and foreign demand are expected to support real GDP growth in the euro area in 2008, albeit to a lesser extent than during 2007. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from continued robust growth in emerging economies. This should support euro area external demand. As regards domestic developments, the fundamentals of the euro area economy remain sound and the euro area does not suffer from major imbalances. In this context, investment growth in the euro area should continue to support economic activity, as rates of capacity utilisation remain elevated and profitability in the non-financial corporate sector has been sustained. Moreover, employment rates and labour force participation have increased significantly in recent years, and unemployment rates have fallen to levels not seen for 25 years. However, these developments, which support household disposable income and consumption, are unlikely to fully compensate the loss of purchasing power caused by higher energy and food prices.","In the view of the Governing Council, the uncertainty surrounding this outlook for economic activity remains high, owing not least to the very high levels of commodity prices, and downside risks prevail. In particular, risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. Moreover, downside risks continue to relate to the potential for the ongoing financial market tensions to affect the real economy more adversely than anticipated. Concerns about the emergence of protectionist pressures and the possibility of disorderly developments owing to global imbalances also imply downside risks to the outlook for economic activity.","With regard to price developments, annual HICP inflation has remained well above the level consistent with price stability since last autumn, reaching 3.7% in May 2008 and – according to Eurostat’s flash estimate – 4.0% in June. This worrying level of inflation rates results largely from sharp increases in energy and food prices at the global level in recent months.","Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain well above 2% for quite some time, moderating only gradually in 2009. We are thus currently experiencing a protracted period of high annual rates of inflation, which is likely to be more persistent than anticipated some months ago.","Risks to price stability at the policy-relevant medium-term horizon remain clearly on the upside and have increased further over the past few months. These risks include notably the possibility of further increases in energy and food prices. There is also a very strong concern that price and wage-setting behaviour could add to inflationary pressures via broadly based second-round effects. The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. Furthermore, there are potential upside risks from unanticipated rises in indirect taxes and administered prices.","Against this background, it is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability. The shift in relative prices and the related transfer of income from commodity-importing countries to commodity-exporting countries have to be accepted. They require a change in the behaviour of companies and households. Therefore, broadly based second-round effects stemming from the impact of higher energy and food prices on price and wage-setting behaviour must be avoided. All parties concerned, in both the private and the public sector, must meet their responsibilities in this regard. In this context, the Governing Council is concerned about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. Over recent quarters, these risks appear to have become manifest as inflation has trended upwards. Against this background, the continued strength of monetary dynamics represents an important signal of the risks to price stability over the medium term that we have been addressing through our actions since end-2005, including today’s move.","More specifically, annual M3 growth has remained very vigorous in recent months, supported by the continued strong growth of MFI loans to the private sector. Although annual M3 growth of still above 10% overstates the underlying pace of monetary expansion, owing to the impact of the flat yield curve and other temporary factors, nonetheless, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.","The current structure of yields has triggered substitution both within and into the broad monetary aggregate M3, leading to a pronounced decline in annual M1 growth and very rapid increases in time deposits. At the same time, higher short-term interest rates have served to moderate the growth of household borrowing, although cooling housing markets in several parts of the euro area have also played a substantial role in this regard. However, the growth of bank loans to non-financial corporations has remained very robust despite the rises in short-term rates. While some moderation can be expected in the future in the light of tightening financing conditions and more moderate economic growth, bank borrowing by euro area non-financial corporations grew at an annual rate of 14.2% in May 2008, and the flow of loans in recent months has been strong.","Not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium-term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. Moreover, a thorough assessment of the money and credit data has provided an important insight into bank behaviour and financing conditions. In particular, the strength, maturity and sectoral composition of bank borrowing suggest that, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the tensions.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of increasing upside risks to price stability over the medium term, in a context of very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply. At the same time, the economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate ongoing real GDP growth when the high volatility of growth rates in the first half of this year is taken properly into account. Against this background and in full accordance with our mandate, it is imperative that we prevent broadly based second-round effects and counteract the increasing risks to price stability. We emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability, thereby preserving purchasing power in the medium term and supporting sustainable growth and employment in the euro area. On the basis of our current assessment, the monetary policy stance following today’s decision will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policy, budgetary consolidation targets are at risk in a number of euro area countries. Moreover, the risk of countries’ budget deficits coming close to or even exceeding the 3% of GDP reference value has increased. The Governing Council therefore reiterates its strong support for a rigorous implementation of euro area governments’ 2008 budgets and a prudent design of fiscal policy plans for 2009, in line with the agreement in the Eurogroup in May 2008. Achieving and maintaining sound structural fiscal positions is essential to ensure the sustainability of public finances as well as to create scope for the free working of automatic stabilisers in all euro area countries and thereby contribute to the smoothing of cyclical fluctuations.","As regards structural reforms, we reiterate our full support for all efforts to enhance competition, increase productivity and foster market flexibility. In view of the marked increase in international food commodity prices, removing impediments to competition at the various stages of the food supply chain in the retail and distribution sectors would benefit European consumers through lower prices. As regards labour markets, let me direct your attention to the ECB’s 2008 Structural Issues Report, which was recently submitted to the European Parliament. It emphasises the generally favourable labour market developments in the euro area over the last decade but equally points out the urgent need to counter the ageing-related reduction in the labour force, in particular by increasing employment in all groups of society, by making labour markets more flexible and by enhancing investment in education and training.","We are now at your disposal for questions.","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.","On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our previous meeting has further underpinned the reasoning behind our decision to increase interest rates in July. It has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time and that risks to price stability over the medium term remain on the upside. This assessment is underpinned by continued vigorous money growth, with so far no signs of significant constraints on bank loan supply. In such a context, it remains crucial to avoid broadly based second-round effects in wage and price-setting. The latest economic data point to a weakening of real GDP growth in mid-2008, which in part was expected after the exceptionally strong growth in the first quarter. Against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability. This will preserve purchasing power in the medium term and support sustainable growth and employment. On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","The information on economic activity that has become available since the July press conference suggests that real GDP growth figures for mid-2008 will be substantially weaker than for the first quarter of the year. As indicated on previous occasions, this represents partly a technical reaction to the strong growth seen in the first months of the year. In addition, it also partly reflects a weakening in GDP growth due to factors such as slower expansion at the global level and dampening effects from high and volatile oil and food prices. In order to assess the underlying momentum of euro area economic activity and to avoid being misguided by highly volatile quarterly outturns, it is necessary to look through the volatility in quarter-on-quarter growth rates and monthly indicators.","Taking this perspective, growth in the world economy, while moderating, is expected to remain relatively resilient, benefiting in particular from sustained growth in emerging economies. This should support external demand for euro area goods and services. As regards domestic developments, in a medium-term perspective the fundamentals of the euro area are sound and the euro area does not suffer from major imbalances. Investment growth in the euro area has provided ongoing, though moderating, support to economic activity. Moreover, employment and labour force participation have increased significantly, and unemployment rates remain low in historical terms. However, these developments, which support household disposable income and consumption, are unlikely to fully compensate the loss of purchasing power caused by higher energy and food prices.","In the view of the Governing Council, the uncertainty surrounding this outlook for economic activity remains high, owing to, among other things, the very high and volatile levels of commodity prices and the ongoing tensions in financial markets. Overall, downside risks prevail. In particular, risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. Moreover, downside risks continue to relate to the potential for the financial market tensions to affect the real economy more adversely than currently anticipated. The possibility of disorderly developments owing to global imbalances also implies downside risks to the outlook for economic activity, as do concerns about the emergence of protectionist pressures. In this respect, the failure of the recent negotiations in the context of the World Trade Organization’s Doha round on trade liberalisation is a major setback.","With regard to price developments, annual HICP inflation has remained considerably above the level consistent with price stability since last autumn, reaching 4.0% in June 2008 and, according to Eurostat’s flash estimate, 4.1% in July. This worrying level of inflation rates results largely from both direct and indirect effects of past sharp increases in energy and food prices at the global level. At the same time, while labour productivity growth has decelerated, there are some indications that labour cost growth has been rising in recent quarters.","Looking ahead, on the basis of current futures prices for commodities, the annual HICP inflation rate is likely to remain well above a level consistent with price stability for quite some time, moderating only gradually in 2009.","Risks to price stability at the policy-relevant medium-term horizon remain clearly on the upside and have increased over the past few months. These risks include notably the possibility of further increases in energy and food prices and of increasing indirect effects on consumer prices. There is a very strong concern that price and wage-setting behaviour could add to inflationary pressures via broadly based second-round effects. The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. Furthermore, there are potential upside risks from unanticipated rises in indirect taxes and administered prices.","Against this background, it is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability. The shift in relative prices and the related transfer of income from commodity-importing countries to commodity-exporting countries require a change in the behaviour of companies and households. Therefore, broadly based second-round effects stemming from the impact of higher energy and food prices on price and wage-setting behaviour must be avoided. All parties concerned, in both the private and the public sector, must meet their responsibilities in this regard. In this context, the Governing Council has repeatedly expressed its concern about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council therefore calls for such schemes to be avoided.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. Over recent quarters, these risks appear to have become manifest as inflation has trended upwards.","Not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium-term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. While the growth of broad money and credit aggregates is now showing some signs of moderation, also reflecting the policy measures taken since 2005 to address upside risks to price stability, the strong underlying pace of monetary expansion points to continued risks to price stability over the medium term.","The current yield curve has led to very rapid increases in time deposits and to a substantial decline in annual M1 growth. Such effects and other temporary factors must be taken into account in assessing monetary developments. Overall, a broad-based analysis of the data, taking the appropriate medium-term perspective, confirms the underlying strength of money growth.","One of the main factors leading to this conclusion is the still high growth of MFI loans to the private sector, which is underpinning the robust nature of monetary growth. The pace, maturity and sectoral composition of bank borrowing suggest that, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the ongoing financial tensions. Higher short-term interest rates and housing market weakness in several parts of the euro area have dampened the growth of household borrowing over the past few years. By contrast, and notwithstanding tighter financing conditions and moderating economic growth, the expansion of bank credit to non-financial corporations thus far remains very robust.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of increasing upside risks to price stability over the medium term. Annual inflation rates are likely to remain well above levels consistent with price stability, and monetary aggregates continue to grow vigorously, with so far no signs of significant constraints on bank loan supply. The latest economic data point to a weakening of real GDP growth in mid-2008, which in part was expected after the exceptionally strong growth in the first quarter. Against this background, it remains crucial to avoid broadly based second-round effects in wage and price-setting. In full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability, thereby preserving purchasing power in the medium term and supporting sustainable growth and employment in the euro area. On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policy, there are risks that some countries will not achieve their fiscal targets this year. In this situation a rigorous implementation of budget plans and the avoidance of expenditure slippage are of crucial importance. Budget plans for 2009, which are currently being finalised in a number of countries, need to reflect European commitments. In particular, countries with still large deficits must provide ambitious and concrete deficit reduction plans, backed by clearly specified measures, preferably on the expenditure side. Where budgetary scope is available, automatic stabilisers can contribute to the smoothing of cyclical economic fluctuations.","As regards structural policies, measures which reduce adjustment costs and promote moderate unit labour cost growth are of the utmost importance, particularly in the current climate of high inflation and slowing real GDP growth. These include the removal of impediments to competition in the services sector in general, and at the various stages of the food supply chain in the retail and distribution sectors, as well as in the energy sector, more specifically. Equally, making labour markets more flexible and enhancing investment in education and training would foster productivity, thereby increasing the scope for increases in real incomes.","We are now at your disposal for questions.","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 Commissioner Almunia.","On the basis of our regular economic and monetary analyses, at today’s meeting we decided to leave the key ECB interest rates unchanged. The information that has become available since the last meeting has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time and that upside risks to price stability over the medium term prevail. While the growth of broad money and credit aggregates is now showing some signs of moderation, the still strong underlying pace of monetary expansion points to continued upside risks to price stability over the medium term. The latest economic data also confirm the weakening of real GDP growth in mid-2008. This reflects partly an expected technical reaction to the strong growth seen in the first quarter as well as dampening effects from global and domestic factors, including direct and indirect effects from high commodity prices. In this environment, it remains imperative to avoid broad-based second-round effects in price and wage-setting. In full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that we are resolute in our determination to keep medium and long-term inflation expectations firmly anchored in line with price stability. This will preserve purchasing power in the medium term and support sustainable growth and employment. On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","According to Eurostat’s first estimate, following strong quarterly growth of 0.7% in the first quarter, euro area real GDP contracted by 0.2% in the second quarter of 2008. In terms of quarter-on-quarter growth, private consumption declined by 0.2% and there was a perceptible weakness in investment, which fell by 1.2%. Growth in both euro area imports and exports declined by 0.4%.","Taking into account all available information, the euro area economy is currently experiencing an episode of weak activity characterised by high commodity prices weighing on consumer confidence and demand, as well as by dampened investment growth. We expect this episode to be followed by a gradual recovery. In particular, if persistent, the fall in oil prices from their peak in July will help strengthen real disposable income, with the level of employment remaining high and the unemployment rate low by historical standards. Moreover, growth in the world economy is expected to remain relatively resilient, benefiting mainly from sustained growth in emerging economies. This should support external demand for euro area goods and services and thereby investment.","This outlook is also reflected in the September 2008 ECB staff macroeconomic projections for the euro area. The exercise projects average annual real GDP growth in a range between 1.1% and 1.7% in 2008, and between 0.6% and 1.8% in 2009. In comparison with the June Eurosystem staff projections, real GDP growth figures for 2008 and 2009 are lower.","In the view of the Governing Council, the uncertainty surrounding this outlook for economic activity is particularly high at the current juncture and, generally, downside risks prevail. Risks stem particularly from renewed increases in energy and food prices, which could dampen consumption and investment. Moreover, downside risks continue to relate to the potential for the financial market tensions to affect the real economy more adversely than currently foreseen. The possibility of disorderly developments owing to global imbalances also implies downside risks to the outlook for economic activity, as do concerns about rising protectionist pressures.","With regard to price developments, annual HICP inflation has remained considerably above the level consistent with price stability since last autumn, standing at 3.8% in August according to Eurostat’s flash estimate, after 4.0% in June and July 2008. This worrying level of inflation is largely the result of both the direct and indirect effects of past surges in energy and food prices at the global level. Moreover, wage growth has been picking up in recent quarters, at a time when labour productivity growth has decelerated, resulting in sharp increases in unit labour costs.","Looking ahead, on the basis of current commodity futures prices, the annual HICP inflation rate is likely to remain well above levels consistent with price stability for quite some time, moderating only gradually during the course of 2009. Consistent with this view, the September ECB staff projections foresee average annual HICP inflation at between 3.4% and 3.6% in 2008, and between 2.3% and 2.9% in 2009. The higher inflation projections for 2008 and 2009 mainly reflect higher energy prices and, to a lesser extent, higher food and services prices than assumed previously.","In this context, it is important to recall the conditional nature of the ECB staff projections. They are based on a number of assumptions that are of a purely technical nature and unrelated to policy intentions. In particular, the technical assumptions for short-term interest rates reflect market expectations as at mid-August. Moreover, it should be noted that the projections are based on the assumption that oil and non-oil commodity prices, while remaining at elevated levels, will exhibit greater stability over the projection horizon than has been the case in recent months, in line with prevailing futures prices.","It is the Governing Council’s view that, at the policy-relevant medium-term horizon, there are upside risks to the outlook for price developments. These risks include the possibility of renewed increases in commodity prices and of previous rises having further and stronger indirect effects on consumer prices. There is particularly a very strong concern that the emergence of broad-based second-round effects in price and wage-setting behaviour could add significantly to inflationary pressures. Moreover, the upside risks to price stability could be aggravated by unexpected rises in indirect taxes and administered prices.","Against this background, it is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability. Broad-based second-round effects stemming from the impact of higher energy and food prices on price and wage‑setting behaviour must be avoided. The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. All parties concerned – in both the private and the public sectors – must meet their responsibilities in this regard. The Governing Council has repeatedly expressed its concern about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council calls for these schemes to be abolished.","The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. Over recent quarters, these risks appear to have become manifest as inflation has trended upwards.","Not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium-term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. While the growth of broad money and credit aggregates is now showing some signs of moderation, reflecting the policy measures taken since 2005 to address risks to price stability, the strong underlying pace of monetary expansion points to continued upside risks to price stability over the medium term.","The currently flat yield curve has given rise to a substitution from longer maturity assets into monetary instruments, which offer similar remuneration but greater liquidity and less risk. This substitution has led the current headline rate of M3 growth to overstate the underlying pace of monetary expansion. At the same time, shifts out of overnight deposits drove the annual growth rate of M1 down further in July. These effects, as well as other temporary factors, must be taken into account when assessing monetary developments and their implications. A broad-based analysis of the data, taking the appropriate medium-term perspective and allowing for these considerations, confirms the underlying strength of money growth.","In particular, the pace, maturity and sectoral composition of borrowing from banks suggest that, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the ongoing financial tensions. This notwithstanding, growth in loans now shows signs of moderation, as previously anticipated, with corporate demand for credit slowing. At the same time, the growth of loans to households continues to follow the downward trend observed over the past few years, as a result of higher short-term interest rates and housing market weakness in several parts of the euro area.","To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of upside risks to price stability over the medium term. The information that has become available since the last meeting of the Governing Council has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time. The growth of broad money and credit aggregates is now showing some signs of moderation, but the still strong underlying pace of monetary expansion points to continued risks to price stability over the medium term. The latest economic data also confirm the weakening of real GDP growth in mid-2008. This reflects partly an expected technical reaction to the strong growth seen in the first quarter as well as dampening effects from global and domestic factors, including direct and indirect effects from high commodity prices. Against this background, it remains imperative to avoid broad-based second-round effects in wage and price-setting. In full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that we are resolute in our determination to keep medium and long-term inflation expectations firmly anchored in line with price stability, thereby preserving purchasing power in the medium term and supporting sustainable growth and employment in the euro area. On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policy, budget plans for 2009 should fully reflect existing policy commitments. This implies that euro area countries with relatively large fiscal deficits need to specify much more ambitious and concrete consolidation measures, especially on the expenditure side. Countries that have already achieved their medium-term budgetary objectives need to ensure that they maintain sound structural fiscal positions. At the current juncture, the steady pursuit of stability-oriented fiscal policies would help to contain inflationary pressures and provide the required budgetary room for manoeuvre to allow automatic stabilisers to contribute to smoothing the business cycle.","Turning to structural policies, measures that reduce adjustment costs and promote moderate unit labour cost growth are of the utmost importance in the current economic circumstances. While this is crucial in all euro area countries, it is particularly pressing in those that have experienced a significant loss of cost and price competitiveness over recent years and where unemployment has already started to rise. Moreover, fostering productivity through enhanced investment in innovation and education enlarges the scope for increases in real incomes in the longer run.","We are now at your disposal for questions.","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 Commissioner Almunia.","On the basis of its regular economic and monetary analyses, at today’s meeting the Governing Council decided to leave the key ECB interest rates unchanged. We discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments. In this context, we stressed the crucial importance of keeping inflation expectations firmly anchored in line with our objective. Price stability fosters an efficient allocation of resources, contains inflation risk premia and longer-term financing costs, and preserves the purchasing power of our currency. In so doing, it supports sustainable growth and employment and contributes to financial stability. The most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. At the same time, annual inflation rates are likely to remain well above levels consistent with price stability for some time. With the weakening of demand, upside risks to price stability have diminished somewhat, but they have not disappeared. While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, the growth of broad money and credit aggregates is showing some further signs of moderation. It is imperative to avoid broad-based second-round effects in price and wage-setting. All parties concerned face exceptional challenges and are called upon to meet their responsibilities Accordingly, we confirm that we remain determined to secure price stability in the medium term and will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","When analysing current developments in economic activity, it needs to be stressed that we face an extraordinarily high degree of uncertainty, in large part stemming from the recent intensification of the financial market turmoil. This complicates any assessment of the near to medium-term economic prospects. As the world economy as a whole is feeling the adverse effects of the intensified and prolonged financial market turmoil, the most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. The fall in oil prices from their peak in July and ongoing growth in emerging market economies might support a gradual recovery in the course of 2009.","In the view of the Governing Council, the economic outlook is subject to increased downside risks, mainly stemming from a scenario of ongoing financial market tensions affecting the real economy more adversely than currently foreseen. Other downside risks relate to the possibility of renewed increases in highly volatile energy and food prices, disorderly developments owing to global imbalances and rising protectionist pressures.","With regard to price developments, annual HICP inflation has remained considerably above the level consistent with price stability since last autumn, standing at 3.6% in September according to Eurostat’s flash estimate, after 3.8% in August. This still worrying level of inflation is largely the consequence of both the direct and indirect effects of past surges in energy and food prices at the global level. Moreover, wage growth has been picking up rather strongly in recent quarters, in spite of a weaker growth momentum and at a time when labour productivity growth has decelerated. This resulted in a sharp increase in the year-on-year unit labour cost – to 3.4% – in the second quarter of this year, after several years of more moderate increases in the order of 1-1½%.","Looking ahead, on the basis of current commodity futures prices, annual HICP inflation rates are likely to remain well above levels consistent with price stability for some time, moderating gradually during the course of 2009. At the policy-relevant medium-term horizon, taking into account the weakening in demand, upside risks to price stability have diminished somewhat, but they have not disappeared. They include the possibility of previous commodity price rises having further and stronger indirect effects on consumer prices, as well as a renewed increase in commodity prices. In particular, there is a very strong concern that the emergence of broad-based second-round effects in price and wage-setting behaviour could add significantly to inflationary pressures. Moreover, unexpected rises in indirect taxes and administered prices could occur.","Against this background, it is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability. This is all the more the case in an environment of very high uncertainty. Broad-based second-round effects stemming from the impact of past energy and food price increases on price and wage-setting behaviour must be avoided. The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. We have repeatedly expressed our concern about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council calls for these schemes to be abolished.","Turning to the monetary analysis, we need to recognise that the latest monetary data refer to the end of August and thus do not yet embody the impact of the recent intensification of the financial market turmoil. Further data on this impact will be carefully evaluated. As a general observation, previous episodes suggest that financial market tensions can have a relatively limited impact on monetary developments, but they have also been associated with large portfolio shifts and thus have exerted significant influence on monetary data.","While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, data up to August show that the growth of broad money and credit aggregates moderated over the past few months, reflecting the monetary policy decisions taken since 2005 to address risks to price stability. As a more detailed examination shows, the flat yield curve and the structure of bank deposit rates have led to a number of substitution effects. First, there has been a substitution from longer-term maturity assets into instruments covered by M3, which offer similar remuneration but greater liquidity and less risk. As a consequence, the annual growth rate of M3 probably overstates the underlying pace of monetary expansion. Second, there have been substitution effects within M3. In contrast to the dynamic developments in M3, annual M1 growth has fallen to very low levels. This reflects relatively attractive interest rates for time deposits, which have increased the opportunity cost of holding cash or overnight deposits.","Although, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the ongoing financial tensions, the gradual moderation of growth in loans continued in the August data, as previously anticipated, with corporate demand for credit slowing. At the same time, the growth of loans to households continues to follow the downward trend observed over the past few years, as a result of higher short-term interest rates and housing market weakness in several parts of the euro area.","To sum up, we discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments. In this context, we stressed how crucial it is for monetary policy to keep inflation expectations firmly anchored in line with our objective. Price stability fosters an efficient allocation of resources, contains inflation risk premia and longer-term financing costs, and preserves the purchasing power of our currency. In so doing, it supports sustainable growth and employment and contributes to financial stability. The most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. The cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms that annual inflation rates are likely to remain well above levels consistent with price stability for some time and, when taking into account the weakening of demand, that upside risks to price stability have diminished somewhat, but they have not disappeared. While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, the growth of broad money and credit aggregates is showing some further signs of moderation. It is imperative to avoid broad-based second-round effects in price and wage-setting. All parties concerned face exceptional challenges and are called upon to meet their responsibilities Accordingly, we confirm that we remain determined to secure price stability in the medium term and will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policy, in the current situation of continuing economic uncertainty, it is essential that governments abide by the rules of the Stability and Growth Pact and ensure the sustainability of public finances. Maintaining sound public finances will enable governments to let automatic stabilisers operate freely and thus contribute to smoothing the economic cycle and to supporting private sector confidence.","Turning to structural policies, measures that foster competition and flexibility and promote moderate unit labour cost growth are of the utmost importance in the current economic circumstances. While moderate unit labour cost growth is crucial in all euro area countries, it is particularly pressing in those that have experienced a significant loss of cost and price competitiveness over recent years and where unemployment has already started to rise. Moreover, labour market reforms fostering employment and investment and promoting skills, innovation and efficiency remain essential to support growth and real incomes in the longer term.","We are now at your disposal for questions.","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 President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of its regular economic and monetary analyses, at today’s meeting the Governing Council decided to reduce the key ECB interest rates further by 50 basis points, following the previous coordinated interest rate cut on 8 October 2008. The outlook for price stability has improved further. Inflation rates are expected to continue to decline in the coming months, reaching a level in line with price stability during the course of 2009. The intensification and broadening of the financial market turmoil is likely to dampen global and euro area demand for a rather protracted period of time. In such an environment, taking into account the strong fall in commodity prices over recent months, price, cost and wage pressures in the euro area should also moderate. At the same time, the underlying pace of monetary expansion has remained strong but has continued to show further signs of deceleration. All in all, the information available and our current analysis indicate a further alleviation of upside risks to price stability at the policy-relevant medium-term horizon, even though they have not disappeared completely. At this juncture, it is therefore crucial that all parties, including public authorities, price-setters and social partners, fully live up to their responsibilities. The level of uncertainty stemming from financial market developments remains extraordinarily high and exceptional challenges lie ahead. We expect the banking sector to make its contribution to restore confidence. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective. In so doing, it supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","When analysing current developments in economic activity, we face an extraordinarily high degree of uncertainty in large part stemming from the intensification and broadening of the financial market turmoil. The world economy as a whole is feeling the adverse effects, as tensions increasingly spill over from the financial sector to the real economy and from advanced economies to emerging market economies. In the case of the euro area, the latest survey data confirm that momentum in economic activity has weakened significantly, with sluggish domestic and external demand and tighter financing conditions. Looking forward, it will be crucial to lay sound foundations for a recovery. For this to materialise as early as possible, it is of the utmost importance to maintain discipline and a medium-term perspective in macroeconomic policy-making, and to avoid second-round effects. It is equally important that the banking sector takes fully into account the significant support measures adopted by governments to deal with the financial turmoil. These measures should be supporting trust in the financial system and should help to prevent undue constraints in credit supply to companies and households. In combination with the recent broad-based falls in commodity prices, these measures should help to restore confidence.","In the view of the Governing Council, a number of the downside risks to economic activity identified earlier have materialised, particularly those stemming from the financial market tensions. Other downside risks continue to relate to disorderly developments due to global imbalances and rising protectionist pressures, as well as to the possibility of renewed increases in commodity prices.","With regard to price developments, annual HICP inflation has remained considerably above the level consistent with price stability since last autumn. However, it has been steadily declining since July, falling – according to Eurostat’s flash estimate – to 3.2% in October, from 3.6% in September and 3.8% in August. The continued high level of inflation is largely due to both the direct and indirect effects of past surges in energy and food prices at the global level. Moreover, strong wage growth in the first half of the year, in spite of a weaker growth momentum, combined with a deceleration in labour productivity during the same period, resulted in a significant increase in unit labour cost.","Looking forward, recent sharp falls in commodity prices, as well as the ongoing weakening in demand, suggest that the annual HICP inflation rate will continue to decline in the coming months and reach a level in line with price stability during the course of 2009. Depending, in particular, on the future path of oil and other commodity prices, some even stronger downside movements in HICP inflation cannot be excluded around the middle of next year, particularly due to base effects. These movements would be short-lived and therefore not relevant from a monetary policy perspective. Looking through such volatility, however, upside risks to price stability at the policy-relevant horizon are alleviating. The remaining upside risks relate to an unexpected increase in commodity prices, as well as in indirect taxes and administered prices, and the emergence of broad-based second-round effects in price and wage-setting behaviour, particularly in economies where nominal wages are indexed to consumer prices. The Governing Council calls for these schemes to be abolished. It is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability.","Turning to the monetary analysis, the annual growth rates of broad money and credit aggregates, while still remaining strong, continued to decline in September. Taking the appropriate medium-term perspective, monetary data up to September confirm that upside risks to price stability are diminishing but that they have not disappeared completely.","A closer examination of the money and credit data indicates that the recent intensification of financial tensions has already had an identifiable impact, particularly in the form of outflows from money market funds and greater inflows into overnight deposits. However, the full impact of investors’ uncertainty on their portfolio allocation behaviour is still to be seen in the coming months. Both portfolio shifts between non–monetary and monetary assets and shifts between different types of monetary assets can therefore not be ruled out in the period ahead. Hence, such effects will need to be taken into account when assessing monetary growth and its implications for price stability over the medium term.","There is also some evidence in the September data that the recent intensification of the financial tensions has triggered a slower provision of bank credit to euro area residents, mostly taking the form of smaller holdings of securities. At the same time, for the euro area as a whole, up to September there were no indications of a drying-up in the availability of bank loans to households and non-financial corporations. In particular, the maturity composition of loans suggests that non-financial corporations continued to obtain funding, also at relatively long maturities. However, more data and further analysis are necessary to form a robust judgement.","To sum up, the intensification and broadening of the financial market turmoil is likely to dampen global and euro area demand for a rather protracted period of time. In such an environment, taking into account the strong fall in commodity prices over recent months, price, cost and wage pressures in the euro area should also moderate. At the same time, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms that the underlying pace of monetary expansion has remained strong but has continued to show further signs of deceleration. Hence, when taking all information and analysis into account, there is a further alleviation of upside risks to price stability at the policy-relevant medium-term horizon, even though they have not disappeared completely. At this juncture, it is therefore crucial that all parties, including public authorities, price-setters and social partners, fully live up to their responsibilities. The level of uncertainty stemming from financial market developments remains extraordinarily high and exceptional challenges lie ahead. We expect the banking sector to make its contribution to restore confidence. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective. In so doing, it supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","In the area of fiscal policy, medium-term challenges, such as population ageing, strongly underline the need for fiscal policy to focus on medium-term sustainability and thereby build confidence. Accordingly, and as recently confirmed by the ECOFIN Council and the European Council, the fiscal policy provisions of the Maastricht Treaty and the Stability and Growth Pact should continue to be applied fully. The fiscal rules are one of the indispensable pillars of EMU and the single currency, which must remain firmly in place so as not to undermine the confidence in fiscal sustainability. Finally, the current situation calls for ensuring the high quality and timeliness of statistical information on government interventions to ensure the transparent and accountable use of public funds.","Turning to structural policies, the ongoing period of weak economic activity and high uncertainty about the economic outlook will require a significant degree of resilience from the euro area economy. The current situation should therefore be seen as a catalyst to foster the implementation of necessary domestic reforms so that countries may fully exploit the benefits offered by the enhancement of international trade and market integration, in line with the principle of an open market economy with free competition.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Brussels. I would like to thank Governor Quaden for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council.","We will now report on the outcome of today’s meeting, which was also attended by Mrs Lagarde, President of the ECOFIN Council, and Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by a further 75 basis points. This step follows the two 50-basis point reductions in the key ECB interest rates announced on 8 October and 6 November 2008. Overall, since our last meeting, the evidence that inflationary pressures are diminishing further has increased and, looking forward, inflation rates are expected to be in line with price stability over the policy-relevant horizon, supporting the purchasing power of incomes and savings. The decline in inflation rates is due mainly to the fall in commodity prices and the significant slowdown in economic activity. Largely related to the effects of the intensification and broadening of the financial turmoil, both global demand and euro area demand are likely to be dampened for a protracted period of time. At the same time, while the underlying pace of monetary expansion has remained strong, it has continued to decelerate further. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective. In so doing, it supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis.","Since September, there has been an intensification and broadening of the financial market turmoil. Tensions have increasingly spilled over from the financial sector to the real economy, and the world economy as a whole is feeling their adverse effects. In the euro area, a number of the downside risks to economic activity that were identified previously have materialised, leading in the third quarter to a contraction of 0.2% in real GDP growth, on a quarterly basis, according to Eurostat’s first estimate. Available survey data and the monthly indicators for October and November suggest that economic activity has weakened further during the fourth quarter of 2008.","Looking further ahead, on the basis of our current analysis and assessment, we see global economic weakness and very sluggish domestic demand persisting in the next few quarters. According to the December 2008 Eurosystem staff macroeconomic projections for the euro area, a subsequent recovery should then gradually take place, supported by the fall in commodity prices and assuming that the external environment improves and the financial tensions weaken. Eurosystem staff project annual real GDP growth of between 0.8% and 1.2% for 2008, between -1.0% and 0.0% for 2009, and between 0.5% and 1.5% for 2010. These figures represent substantial downward revisions relative to the previous ECB staff projections for 2008 and 2009 published in September. Forecasts by international organisations have also been revised downwards and are broadly in line with the December 2008 Eurosystem staff projections.","In the view of the Governing Council, the economic outlook remains surrounded by an exceptionally high degree of uncertainty. Risks to economic growth lie on the downside. They relate mainly to the potential for a more significant impact on the real economy of the turmoil in financial markets, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances.","It is crucial that all parties concerned make their contribution to lay sound foundations for a sustainable recovery. For this to materialise as early as possible, it is of the utmost importance to maintain discipline and a medium-term perspective in macroeconomic policy-making. This is the best way to support confidence. The significant measures announced by governments to deal with the financial turmoil should be implemented swiftly so as to help ensure trust in the financial system and to prevent constraints on credit supply to companies and households.","With regard to price developments, annual HICP inflation has declined substantially since July. According to Eurostat’s flash estimate, HICP inflation was 2.1% in November, after 3.2% in October and 4.0% in July. The significant decline in headline inflation since the summer mainly reflects the considerable easing in global commodity prices over the past few months, which more than offsets the impact of the sharp rise in unit labour costs in the first half of this year.","Looking forward, lower commodity prices and weakening demand lead us to conclude that inflationary pressures are diminishing further. The annual HICP inflation rate is expected to continue to decline in the coming months and to be in line with price stability over the policy-relevant horizon. Depending primarily on future developments in oil and other commodity prices, a faster decline in HICP inflation cannot be excluded around the middle of next year, mainly due to base effects. However, also due to base effects, inflation rates could increase again in the second half of the year, so that any sharp fall in HICP inflation should be short-lived and is therefore not relevant from a monetary policy perspective.","Consistent with this assessment, the December 2008 Eurosystem staff projections foresee annual HICP inflation of between 3.2% and 3.4% for 2008 and declining to between 1.1% and 1.7% for 2009. For 2010, HICP inflation is projected to lie between 1.5% and 2.1%. The HICP inflation projections for 2008 and 2009 have been revised downwards substantially in relation to the September 2008 ECB staff projections, reflecting mainly the large declines in commodity prices and the impact of weakening demand on price developments. In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including market expectations for short and long-term interest rates, as well as futures prices for oil and non-energy commodities. In addition, the projections are based on the expectation of a decline in wage pressure over the projection horizon. Forecasts from international organisations give a broadly similar picture.","Looking through the shorter-term volatility in headline HICP inflation rates, risks to price stability at the policy-relevant horizon are more balanced than in the past. Unexpected further declines in commodity prices could put downward pressure on inflation, while upside risks to price stability could materialise particularly if the recent fall in commodity prices were to reverse or if domestic price pressures turn out to be stronger than assumed. It is therefore crucial that price and wage-setters fully live up to their responsibilities.","Turning to the monetary analysis, various estimates of underlying broad money growth point to a sustained but moderating rate of monetary expansion in the euro area. Monetary trends therefore support the view that inflationary pressures are diminishing further, with some risks remaining on the upside in the medium to longer term.","It should be recognised that the intensification of the financial market turmoil since mid-September marks a potential watershed in the evolution of monetary developments. The most recent money and credit data indicate that this intensification has had a significant impact on the behaviour of market participants. Thus far, such developments have largely taken the form of substitution among components of the broad aggregate M3, rather than sharp changes in the evolution of M3 itself.","The latest available data, namely up to the end of October, reveal a continued moderation of the growth rate of loans to the non-financial private sector. At the same time, for the euro area as a whole, there were no significant indications of a drying up in the availability of loans. The annual growth rate of loans to households also moderated further, in line with the weakening of economic and housing market prospects and tighter financing conditions. The data do signal an impact of the intensification of the financial turmoil on bank behaviour. Looking forward, more data and further analysis are necessary to form a robust judgement.","To sum up, there is increased evidence that inflationary pressures are diminishing further and inflation rates are expected to be in line with price stability over the policy-relevant horizon, supporting the purchasing power of incomes and savings. The decline in inflation rates is due mainly to the fall in commodity prices and the significant slowdown in economic activity largely related to the global effects of the financial turmoil. A cross-check of the outcome of the economic analysis with that of the monetary analysis supports this view. While the underlying pace of monetary expansion has remained strong, it has continued to decelerate further. Hence, when considering all available information and analysis, the Governing Council decided to reduce the key ECB interest rates by a further 75 basis points. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective. In so doing, it supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policies, the Governing Council considers it crucial that discipline and a medium-term perspective are maintained, taking fully into account the consequences of any shorter-term action on fiscal sustainability. It is of the utmost importance that the public’s confidence in the soundness of fiscal policies is preserved, with the rules-based EU fiscal framework being fully applied and its integrity being fully preserved. The provisions of the Treaty of Nice and the Stability and Growth Pact require a medium-term perspective and allow for the necessary flexibility. Automatic fiscal stabilisers are relatively large in the euro area and provide a powerful source of fiscal support to a weakening economy. Where room for manoeuvre exists, additional budgetary measures could be effective if they are timely, targeted and temporary.","Turning to structural policies, the ongoing period of weak economic activity and high uncertainty about the economic outlook imply the need to strengthen the resilience and flexibility of the euro area economy. Product market reforms should foster competition and speed up effective restructuring. Labour market reforms should help to facilitate appropriate wage-setting, as well as labour mobility across sectors and regions. The current situation should therefore be seen as a catalyst to foster the implementation of necessary domestic reforms in line with the principle of an open market economy with free competition.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our first press conference of 2009. Let me therefore wish you all a very Happy New Year. I would also like to take this opportunity to welcome Slovakia as the 16th country to adopt the euro as its currency. Accordingly, Mr Šramko, the Governor of Národná banka Slovenska, became a member of the Governing Council on 1 January 2009. Following the adoption of the euro by Slovakia there are now 329 million citizens using the euro as their currency.","We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to reduce the interest rate on the main refinancing operations of the Eurosystem by a further 50 basis points, bringing the total reduction since 8 October 2008 to 225 basis points. Today’s decision takes into account that inflationary pressures have continued to diminish, owing in particular to the further weakening in the economic outlook. Looking forward, we continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of incomes and savings. After today’s decision we consider risks to price stability over the medium term to be broadly balanced. This takes into account the latest economic data releases and survey information, which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown, largely related to the effects of the intensification and broadening of the financial turmoil. Both global demand and euro area demand are likely to be dampened for a protracted period. Monetary expansion is moderating further, supporting the assessment that inflationary pressures and risks are diminishing. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective of inflation rates below, but close to, 2%. This supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis. Since September 2008 the financial market turmoil has intensified and broadened. Tensions have increasingly spilled over from the financial sector into the real economy. As a result, economic activity throughout the world, including in the euro area, has weakened further. In particular, foreign demand for euro area exports has declined, and euro area domestic activity has contracted in the face of weaker demand prospects and tighter financing conditions. The survey data and monthly indicators for November and December that have become available since our last meeting clearly point to a further weakening of economic activity around the turn of the year, indicating the materialisation of previously identified downside risks to activity.","Looking further ahead, on the basis of our current analysis and assessment, we continue to see global economic weakness and very sluggish domestic demand persisting in the coming quarters as the impact of the financial tensions on activity continues. At the same time, we expect the fall in commodity prices to support real disposable income in the period ahead. Furthermore, the euro area should over time reap the full benefit from the effects of policy measures announced over recent weeks","In the view of the Governing Council, this outlook for the economy remains surrounded by an exceptionally high degree of uncertainty. Overall, risks to economic growth remain clearly on the downside. They relate mainly to the potential for a stronger impact on the real economy of the turmoil in financial markets, as well as to concerns about the emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances.","It is crucial that all parties concerned make their contribution to lay sound foundations for a sustainable recovery. For this to materialise as early as possible, it is of the utmost importance to maintain discipline and a medium-term perspective in macroeconomic policy-making, pursuing a stability-oriented and sustainable approach. This is the best way to preserve and enhance confidence. The significant measures being implemented by governments to deal with the financial turmoil should help to ensure trust in the financial system and to ease constraints on credit supply to companies and households.","With regard to price developments, annual HICP inflation has declined substantially since the middle of 2008, when it peaked at 4.0%. HICP inflation was 1.6% in December, after 2.1% in November. As we have emphasised on previous occasions, the significant decline in headline inflation in the second half of 2008 reflects mainly the sharp falls in global commodity prices over the past few months.","Looking forward, lower commodity prices and weakening demand confirm that inflationary pressures in the euro area are diminishing. Owing mainly to base effects stemming from the past behaviour of energy prices, headline annual inflation rates are projected to decline further in the coming months, possibly reaching very low levels at mid-year. However, also owing to base effects stemming from past energy price developments, inflation rates are expected to increase again in the second half of the year. Hence it is likely that HICP inflation rates will fluctuate sharply during 2009. Such short-term volatility is, however, not relevant from a monetary policy perspective. Looking over the policy-relevant, medium-term horizon, annual HICP inflation is expected to be in line with price stability. This assessment is supported by available indicators of inflation expectations for the medium term.","Risks to price stability over the medium term are broadly balanced. Unexpected further declines in commodity prices or a stronger than expected slowdown in the economy could put downward pressure on inflation, while upside risks to price stability could materialise particularly if the recent fall in commodity prices were to reverse or if domestic price pressures turn out to be stronger than assumed. It is therefore crucial that price and wage-setters fully live up to their responsibilities.","Turning to the monetary analysis, the latest evidence confirms a moderating rate of monetary expansion in the euro area. Monetary trends therefore support the view that inflationary pressures and risks are diminishing.","In analysing monetary developments it should be recognised that the intensification of the financial market turmoil since mid-September has the potential to affect the evolution of monetary aggregates significantly. Recent money and credit data indicate that this has already had a substantial impact on the behaviour of market participants. Both the broad aggregate M3 and, in particular, the components of M3 that are most closely related to the ongoing financial tensions – such as holdings of money market funds – have shown high month-to-month volatility of late. Overall, however, looking to the extent possible through this volatility, the rate of broad money growth continues to moderate in line with the trend established over the past 18 months, with the intensification of financial tensions since September leading to significant substitution among the components of M3, rather than, at least so far, sharp changes in the trend of M3 itself.","Turning to the evolution of bank loans, the tightening of financing conditions resulting from the intensification of the financial tensions has contributed to a slowdown in the flow of monetary financial institution (MFI) loans to the non-financial private sector in recent months. More data and further analysis are necessary to form a robust judgement about the severity and scope of credit constraints and their possible implications for economic activity.","To sum up, we decided to reduce the interest rate on the main refinancing operations of the Eurosystem by a further 50 basis points, bringing the total reduction since 8 October 2008 to 225 basis points. Today’s decision takes into account that inflationary pressures have continued to diminish, owing in particular to the further weakening in the economic outlook. The Governing Council recalls its operational decision, taken on 18 December 2008, to widen again the corridor formed by the rates on the Eurosystem’s standing facilities as of 21 January 2009. Looking forward, we continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of incomes and savings. After today’s decision we consider risks to price stability over the medium-term to be broadly balanced. This takes into account the latest economic data releases and survey information, which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown, largely related to the effects of the intensification and broadening of the financial turmoil. Both global demand and euro area demand are likely to be dampened for a protracted period. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms this view. Monetary expansion is moderating further, supporting the assessment that inflationary pressures and risks are diminishing. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective of inflation rates below, but close to, 2%. This supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policies, the Governing Council welcomes the European Council’s reconfirmation of its full commitment to sustainable public finances. In this respect, the current economic situation calls for particular prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country. The operation of automatic stabilisers will provide a relatively large and powerful fiscal impulse to the weakening economy, in addition to already announced expansionary fiscal policy measures and the government support for the banking sector. Taken together, the additional measures decided so far put a considerable burden on public finances in a large number of euro area countries. If not reversed in due time, this will negatively affect in particular the younger and future generations. It is therefore essential to return to a credible commitment to medium-term budgetary objectives as soon as possible. The significant fiscal loosening and the implied increase in government debt should in any case not risk undermining public confidence in the sustainability of public finances, thereby detracting from the effectiveness of a fiscal stimulus.","Turning to structural policies, the ongoing period of weak economic activity and high uncertainty about the economic outlook imply the need to strengthen the resilience and flexibility of the euro area economy. Product market reforms should foster competition and speed up effective restructuring. Labour market reforms should help to facilitate appropriate wage-setting, as well as labour mobility across sectors and regions. The current situation should therefore be seen as a catalyst to foster the implementation of necessary domestic reforms in line with the principle of an open market economy with free competition.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, at today’s meeting the Governing Council decided to leave the key ECB interest rates unchanged. As anticipated in our interest rate decision of 15 January 2009, the latest economic data and survey information confirm that the euro area and its major trading partners are undergoing an extended period of significant economic downturn, and that accordingly both external and domestic inflationary pressures are diminishing. We continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of euro area households. This assessment is supported by available indicators of inflation expectations for the medium term. It is also confirmed by the further deceleration in monetary and credit growth in the euro area. Fully in line with its primary objective, the Governing Council will continue to keep inflation expectations firmly anchored in accordance with its definition of price stability, that is inflation rates of below, but close to, 2% over the medium term. This supports sustainable growth and employment and contributes to financial stability. Overall, the level of uncertainty remains exceptionally high. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Allow me to explain our assessment in greater detail, starting with the economic analysis. Reflecting the impact of the intensified and broadened financial market turmoil, economic activity throughout the world, including in the euro area, has weakened substantially. Foreign demand for euro area exports has declined, and domestic factors, notably very low confidence and tight financing conditions, have adversely affected domestic demand. Taken together with other available economic data for the euro area, this points to very negative quarter-on-quarter real GDP growth in the last quarter of 2008.","This information is in line with our current analysis and forward-looking assessment. We continue to see persistent weakness in economic activity in the euro area over the coming quarters, as the financial market tensions have a further impact on the global and domestic economy. At the same time, the very substantial fall in commodity prices seen since the middle of 2008 should support real disposable income, and thus consumption, in the period ahead. Most recently, there have been tentative signs of stabilisation in some survey data, albeit at historically low levels. These indications, however, require confirmation on a broader basis.","In the view of the Governing Council, the outlook for the economy remains surrounded by an exceptionally high degree of uncertainty. Overall, risks to economic growth remain clearly on the downside. They relate mainly to the potential for a stronger impact on the real economy of the turmoil in financial markets, as well as to concerns about the emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances.","Over time, the euro area should reap the benefit of the effects of significant policy measures that have been decided upon over recent months to deal with the financial turmoil. They should help to restore trust in the financial system and to ease constraints on credit supply to companies and households. In order to ensure that such measures effectively support a sustainable recovery, it is of the utmost importance that they remain focused and temporary in nature so as to maintain a stability-oriented and medium-term perspective in macroeconomic policy-making.","With regard to price developments, annual HICP inflation continued to decline in January 2009, falling to 1.1%, according to Eurostat’s flash estimate, from 1.6% in December 2008. While no detailed breakdown for HICP developments in January is available as yet, the decline in headline inflation observed since the middle of 2008 primarily reflects the sharp falls in global commodity prices over this period, owing mainly to weak global demand.","Looking ahead, lower commodity prices and the prospect of weak demand confirm our assessment of mid-January that inflationary pressures in the euro area are diminishing. Owing mainly to base effects stemming from the past behaviour of energy prices, headline annual inflation rates are projected to decline further in the coming months, possibly reaching very low levels at mid-year. However, also owing to base effects stemming from past energy price developments, inflation rates are expected to increase again in the second half of the year. Accordingly, it is likely that HICP inflation rates will fluctuate sharply during 2009. Such short-term volatility is, however, not relevant from a monetary policy perspective. Looking over the policy-relevant medium-term horizon, annual HICP inflation is expected to be in line with price stability. This assessment is supported by available indicators of inflation expectations for the medium term.","Regarding risks to price stability over the medium term, unexpected further declines in commodity prices or a stronger than expected slowdown in the economy could put downward pressure on inflation, while upside risks to price stability could materialise, particularly if the recent fall in commodity prices were to reverse or if domestic price pressures turn out to be stronger than assumed. It is therefore crucial that price and wage-setters fully live up to their responsibilities.","Turning to the monetary analysis, the latest evidence confirms a continued deceleration in the underlying pace of monetary expansion in the euro area, supporting the view that inflationary pressures are diminishing.","In analysing monetary developments it should be recognised that the intensification and broadening of the financial turmoil since September 2008 has the potential to affect the evolution of monetary aggregates significantly. It has already had a substantial impact on the behaviour of market participants, as indicated by recent money and credit data. Both the broad aggregate M3 and, in particular, the components of M3 that are most closely related to the ongoing financial tensions – such as holdings of money market funds – have shown high month-to-month volatility of late. Overall, looking to the extent possible through this volatility, the underlying pace of broad money expansion continues to decelerate gradually from the peak seen in early 2007. However, the intensification of financial tensions since September 2008 is leading to significant substitution among the components of M3.","Turning to the evolution of bank credit, the flow of MFI loans to the private sector moderated in the course of 2008, largely on account of weakness in loans to households, especially for house purchase. In December, however, outstanding MFI loans to non-financial corporations contracted for the first time since the onset of the financial turmoil, confirming the significant weakening of corporate credit at the end of the year after a long period of dynamic growth. At the same time, the substantial reduction in key ECB interest rates since October 2008 appears to have been passed through to lower bank lending rates, thereby easing financing conditions for companies and households. Moreover, there are some indications that the pace of tightening of bank credit standards is stabilising, albeit at high levels by historical standards. Overall, the incoming information on financing conditions requires continuous close monitoring.","To sum up, as anticipated in our interest rate decision of 15 January 2009, the latest economic data and survey information confirm that the euro area and its major trading partners are undergoing a period of significant economic downturn, and that accordingly both external and domestic inflationary pressures are diminishing. We continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of euro area households. This assessment is supported by available indicators of inflation expectations for the medium term. It is also confirmed by a cross-check of the outcome of the economic analysis with that of the monetary analysis, against the background of a further deceleration in monetary and credit growth in the euro area. Fully in line with its primary objective, the Governing Council will continue to keep inflation expectations firmly anchored in accordance with its definition of price stability, that is inflation rates of below, but close to, 2% over the medium term. This supports sustainable growth and employment and contributes to financial stability. Overall, the level of uncertainty remains exceptionally high. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Turning to fiscal policy, the European Commission projects in its January 2009 interim forecast a substantial rise in the average euro area government budget deficit, to 4.0% of GDP this year, from 1.7% in 2008. This rapid deterioration of the fiscal position is broad-based among euro area countries and is due to the economic downturn, additional revenue shortfalls and the fiscal stimulus measures adopted by many governments. In 2009 seven euro area countries are currently expected by the Commission to exceed the 3% of GDP reference value for the budget deficit. In addition, many governments have assumed large contingent liabilities in connection with the guarantees provided to banks and will need to finance the capital injections in support of the financial sector. To support the public’s confidence in the sustainability of public finances, it is therefore essential that governments return to a credible commitment to medium-term budgetary objectives as soon as possible.","As regards structural policies, it is important to continue on the long-term reform path foreseen by the Lisbon agenda. At the current juncture, it is essential to pursue economic policies in line with the principle of an open market economy with free competition, resisting any protectionist pressure. Moreover, product and services market reforms should foster competition and help to speed up effective restructuring. Labour market reforms should help to facilitate appropriate wage-setting, as well as labour mobility across sectors and regions. This will be particularly important for those areas and sectors hit strongly by the negative demand shock. In several countries, it is also crucial to take measures with a view to addressing competitiveness losses accumulated over recent years.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided today to reduce the key ECB interest rates by a further 50 basis points. This decision brings the total reduction in the interest rate on the main refinancing operations of the Eurosystem since 8 October 2008 to 275 basis points.","Overall, inflation rates have decreased significantly and are now expected to remain well below 2% over 2009 and 2010. This outlook for inflation is due to the fall in commodity prices and diminishing domestic price and cost pressures, reflecting the severe downturn in economic activity. Indeed, recent economic data releases and survey information add further evidence to our assessment that both global and euro area demand are likely to be very weak in 2009. Over the course of 2010, the economy is expected to gradually recover. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation at rates of below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing. After today’s decision we expect price stability to be maintained over the medium term, supporting the purchasing power of euro area households. The Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations, which supports sustainable growth and employment and contributes to financial stability. Accordingly, we will monitor very closely all developments over the period ahead.","Let me now explain our assessment in greater detail, starting with the economic analysis. Reflecting the impact of the financial market turmoil, the world economy has weakened substantially in recent months, affecting increasingly also emerging market economies. In a climate of heightened uncertainty, a severe fall in world trade volumes has been accompanied by a pronounced decline in domestic demand in the euro area. As a consequence, euro area real GDP contracted markedly in the fourth quarter of 2008, by 1.5% on a quarterly basis, according to Eurostat’s first estimate. Available data and survey indicators suggest that economic activity in the euro area remained weak in early 2009.","Looking ahead, the Governing Council expects that both global and domestic demand will decline in 2009 but thereafter recover gradually. This assessment is also reflected in the March 2009 ECB staff macroeconomic projections for the euro area, which place annual real GDP growth in a range of -3.2% to -2.2% in 2009, and between -0.7% and +0.7% in 2010. These ranges represent a downward revision of the December 2008 Eurosystem staff macroeconomic projections. In both 2009 and 2010, the annual GDP growth rate will be significantly reduced by negative carry-over effects from the previous year. The projected gradual recovery in 2010 reflects the effects of the substantial macroeconomic stimulus under way as well as of the extensive policy measures that have been introduced to restore the functioning of the financial system, both inside and outside the euro area. In addition, the fall in commodity prices is expected to support real disposable income and consumption in the period ahead.","The outlook for the economy continues to be surrounded by uncertainty. In the view of the Governing Council, the risks to the economic outlook now appear to be more balanced. On the one hand, there may be stronger than anticipated positive effects, also on confidence, stemming from the extensive macroeconomic stimulus under way and reflecting other policy measures taken. On the other hand, concerns relate mainly to the potential for a stronger impact on the real economy of the turmoil in financial markets, as well as to the emergence and intensification of protectionist pressures and to possible adverse developments in the world economy stemming from a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation has been steadily declining since the middle of 2008, when it reached a peak of 4.0%. In February 2009 it was 1.2%, according to Eurostat’s flash estimate, broadly unchanged from 1.1% in January. The decline in inflation since last summer primarily reflects the sharp falls in global commodity prices over this period. However, signs of a more broad-based reduction in inflationary risks are also increasingly emerging.","Reflecting these trends, the March 2009 ECB staff inflation projections constitute a significant downward revision compared with the previous projections and foresee annual HICP inflation at between 0.1% and 0.7% in 2009. Owing mainly to base effects stemming from the past behaviour of energy prices, headline annual inflation rates are projected to decline further in the coming months, possibly temporarily reaching negative levels around mid-year. Thereafter, annual inflation is expected to increase again, also owing to base effects stemming from past energy price developments. Accordingly, it is likely that HICP inflation rates will fluctuate noticeably during 2009. Such short-term volatility is, however, not relevant from a monetary policy perspective.","For 2010, ECB staff project HICP inflation at between 0.6% and 1.4%. This range also represents a substantial downward revision compared with the December 2008 Eurosystem staff macroeconomic projections, mainly reflecting the change in the economic growth outlook. Available forecasts from international organisations have also been revised downwards and broadly confirm an outlook of moderate inflation rates in 2010.","As in the case of growth, a considerable degree of uncertainty surrounds the inflation projections. Risks to these projections are broadly balanced. They relate in particular to the risks to the outlook for economic activity as well as to risks to commodity prices.","Turning to the monetary analysis, the latest data and estimates provide further evidence of an ongoing deceleration in the underlying pace of monetary expansion in the euro area. This implies a further reduction in inflationary risks in the medium term.","The further deceleration in underlying monetary dynamics has contrasted with the high month-to-month volatility of developments in M3 and its components which has been observed since the financial turmoil intensified in September 2008. This relates in particular to marketable instruments, but also to the significant substitution that is taking place between different categories of deposits included in M3. While annual M3 growth declined further, to 5.9%, in January 2009, the annual growth rate of the narrow aggregate M1, which includes the most liquid assets, rose to 5.2%.","Volatility also characterised the flow of MFI loans to the private sector around the turn of the year, with a monthly contraction in the outstanding amount in December followed by a significantly positive flow in January. However, discounting a possible turn-of-the-year effect and looking beyond these latest developments confirms the decline in the growth of bank credit to households and non-financial corporations observed in 2008. At the same time, it appears that the substantial past reduction in the key ECB interest rates is increasingly being passed through to bank lending rates, indicating that, despite the tensions in financial markets, the transmission mechanism of monetary policy is not significantly hampered in the euro area. Still, more data and analysis are needed to firmly assess the outlook for credit in the period ahead.","To sum up, inflation rates have decreased significantly and are now expected to remain well below 2% over 2009 and 2010. Recent economic data releases and survey information add further evidence to our assessment that both global and euro area demand are likely to be very weak in 2009. Over the course of 2010, the economy is expected to gradually recover. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation at rates of below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing. After today’s decision we expect price stability to be maintained over the medium term, supporting the purchasing power of euro area households. The Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations, which supports sustainable growth and employment and contributes to financial stability. Accordingly, we will monitor very closely all developments over the period ahead.","Regarding the fiscal policy responses to the economic downturn, the euro area countries’ updated stability programmes and recent addenda confirm the prospect of a sharp and broad-based deterioration in euro area public finances. A credible commitment to a path of consolidation in order to return to sound fiscal positions, respecting fully the provisions of the Stability and Growth Pact, is necessary to maintain the public’s trust in the sustainability of public finances, which is important both for the economy to recover and for supporting long-term growth. In this respect, we support the Commission’s intention to initiate excessive deficit procedures for several countries. This is crucial to preserve the credibility of the EU fiscal surveillance framework. It is important that clear deadlines are set for correction of the excessive deficits and that consolidation plans are based on firm and well-specified structural measures.","As regards structural policies, it remains important to pursue economic policies in line with the principle of an open market economy with free competition. In this respect, it is essential that government support measures do not distort competition and delay necessary structural adjustment, and it is of the utmost importance to avoid protectionist measures. Refraining from protectionism will be key to allowing the global economy to overcome the current crisis more rapidly. The successful completion of the Doha round of trade negotiations would also be a milestone towards a more integrated and open world economy for the benefit of all.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council.","On the basis of its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by a further 25 basis points. This decision brings the total reduction in the interest rate on the main refinancing operations of the Eurosystem since 8 October 2008 to 300 basis points.","Today’s decision takes into account the expectation that price pressures will remain subdued, reflecting the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally. The latest economic data and survey information confirm that the world economy, including the euro area, is undergoing a severe downturn. Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing. After today’s decision we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. The Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Let me now explain our assessment in greater detail, starting with the economic analysis. Reflecting the impact of the financial market turmoil, economic activity has weakened markedly in the euro area, as domestic demand has contracted in parallel with the downturn in the world economy. Available data and survey indicators suggest that economic activity in the euro area has remained very weak in early 2009. It is likely to remain very subdued for the remainder of the year but is expected to gradually recover in 2010. The substantial fall in commodity prices since the summer of 2008 is supporting real disposable income and thus consumption. In addition, external as well as domestic demand should increasingly benefit from the effects of the significant macroeconomic stimulus under way as well as from measures taken to restore the functioning of the financial system both inside and outside the euro area.","Taking these effects into account, we see the risks to this outlook for economic activity as being broadly balanced. On the one hand, there may be stronger than anticipated positive effects due to the decrease in commodity prices and to policy measures taken. On the other hand, there are concerns that the turmoil in financial markets could have a stronger impact on the real economy, as well as that protectionist pressures could intensify and that there could be adverse developments in the world economy stemming from a disorderly correction of global imbalances.","Annual HICP inflation has fallen further, from 1.2% in February to 0.6% in March, according to Eurostat’s flash estimate As explained on earlier occasions, the decline in inflation since last summer primarily reflects the sharp fall in global commodity prices over this period. Moreover, signs of a more broad-based reduction in inflationary pressure are increasingly emerging. Looking ahead, base effects stemming from past energy price effects will play a significant role in the shorter-term dynamics of the HICP. Accordingly, we expect to see headline annual inflation rates declining further in the coming months and temporarily reaching negative levels around mid-year. Thereafter, annual inflation rates should increase again. Such short-term movements are, however, not relevant from a monetary policy perspective. Looking further ahead, over the policy-relevant horizon, annual HICP inflation is expected to remain below 2% in 2010, reflecting mainly ongoing sluggish demand in the euro area and elsewhere. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term.","The risks surrounding this outlook are broadly balanced. They relate in particular to the risks to the outlook for economic activity as well as to risks to commodity prices.","Turning to the monetary analysis, the latest data confirm the high month-to-month volatility of developments in M3 and its components observed since the intensification of the financial turmoil in September 2008. Looking through this volatility, the pace of monetary expansion in the euro area has continued to decelerate markedly and supports the assessment of diminishing risks to price stability in the medium term.","Developments within M3 clearly reflect market participants’ specific investment responses to the intensification of the financial turmoil, but increasingly also the impact of the past reduction in the key ECB interest rates. As this reduction has narrowed the gaps between the interest rates paid on the different categories of short-term deposits, it has fostered shifts in the allocation of funds. For example, the demand for overnight deposits further strengthened in February and contributed to the rise in the annual growth rate of M1 to 6.3%, while the demand for short-term time deposits weakened considerably.","The flow of MFI loans to non-financial corporations and households has remained very subdued. The slightly negative flow of lending to non-financial corporations in February reflects a decline in the outstanding amount of loans with a shorter maturity, while the net flow in loans with longer maturities remained positive. The decline in short-term lending may be indicative of a reduction in loan demand related to the weakening of economic activity. However, supply effects have probably also affected loan developments. In this respect, developments over the past few months may in part reflect ongoing efforts of banks as well as the corporate and household sector to reduce the highly leveraged positions built up in past years.","To sum up, today’s decision takes into account the expectation that price pressures will remain subdued, reflecting the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally. The latest economic data and survey information confirm that the world economy, including the euro area, is undergoing a severe downturn. Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing. After today’s decision we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. The Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policies, it is necessary that countries’ commitments to a path of consolidation in order to return to sound fiscal positions are credible, respecting fully the provisions of the Stability and Growth Pact. This is essential to maintain the public’s trust in the sustainability of public finances, which is important both for the economy to recover and for supporting long-term growth. Countries subject to the excessive deficit procedure need to comply strictly with the ECOFIN Council recommendations for correcting their deficits. Many countries will need to specify further credible consolidation measures for 2010 and beyond. Full and consistent implementation of the EU’s legal provisions for sound fiscal policies is a prerequisite for the maintenance of their credibility as one of the pillars of the institutional framework of Economic and Monetary Union.","Turning to structural reforms, the Governing Council welcomes the commitment of the spring European Council to make full use of the renewed Lisbon strategy for growth and jobs in the current situation. The updated recommendations for the euro area countries call for an accelerated implementation of reforms to support the economy, facilitate necessary adjustments and ensure a high level of growth potential. It remains essential that government support measures do not distort competition or delay necessary structural adjustment processes and that governments remain firmly committed to avoiding protectionism.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to reduce the interest rate on the main refinancing operations of the Eurosystem by a further 25 basis points and the rate on the marginal lending facility by 50 basis points, to 1.00% and 1.75% respectively. The interest rate on the deposit facility will remain unchanged at 0.25%. This decision brings the total reduction in the interest rate on the main refinancing operations of the Eurosystem since 8 October 2008 to 325 basis points.","Current key ECB interest rates are appropriate taking into account all available information and analysis. In addition to the reductions in interest rates, the Governing Council decided today to proceed with its enhanced credit support approach. In continuity and consistency with the operations we have undertaken since October 2008, and in recognition of the central role played by the banking system in financing the euro area economy, we will conduct liquidity-providing longer-term refinancing operations with a maturity of 12 months. The operations will be conducted as fixed rate tender procedures with full allotment. The rate for the first of these operations, to be announced on 23 June 2009, will be the rate on the main refinancing operations at that time. Subsequently, the fixed rate may include a premium to the rate on the main refinancing operations, depending on the circumstances at the time.","The Governing Council has decided in principle that the Eurosystem will purchase euro-denominated covered bonds issued in the euro area. The detailed modalities will be announced after the Governing Council meeting of 4 June 2009.","Furthermore, the Governing Council has decided that the European Investment Bank will become an eligible counterparty in the Eurosystem’s monetary policy operations with effect from 8 July 2009 and under the same conditions as any other counterparty.","These decisions have been taken to promote the ongoing decline in money market term rates, to encourage banks to maintain and expand their lending to clients, to help to improve market liquidity in important segments of the private debt security market, and to ease funding conditions for banks and enterprises.","Today’s decisions take into account the expectation that price developments will continue to be dampened by the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally. The latest economic data and survey information suggest tentative signs of a stabilisation at very low levels, after a first quarter which was significantly weaker than expected. The world economy, including the euro area, is still undergoing a severe downturn, with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010. This assessment incorporates a number of adverse developments which are likely to materialise over the coming months, such as a further deterioration in labour markets. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms that inflationary pressure has been diminishing, as money and credit growth have further decelerated in recent months. Against the background of these developments, after today’s decisions we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","Let me now explain our assessment in some more detail, starting with the economic analysis. Reflecting the impact of the financial market turmoil, economic activity continued to weaken in the euro area in the course of the first quarter of 2009, in parallel with the ongoing downturn in the world economy. This weakening in the first quarter appears to have been significantly more pronounced than projected in March. More recently, there have been some tentative signs in survey data of a stabilisation, albeit at very low levels. Overall, economic activity is likely to be very weak for the remainder of this year, before gradually recovering in the course of 2010. In particular, the substantial fall in commodity prices since the summer of 2008 is supporting real disposable income and thus consumption. In addition, external as well as domestic demand should increasingly benefit from the effects of the significant macroeconomic stimulus under way as well as from the measures taken so far to restore the functioning of the financial system both inside and outside the euro area.","Taking all these measures and their effects into account, as well as the pronouncedly negative growth in the first quarter of this year and the most recently published forecasts by public institutions, the risks to this outlook remain broadly balanced. On the downside, there are concerns that the turmoil in financial markets could have a stronger impact on the real economy, as well as that protectionist pressures could intensify and that there could be adverse developments in the world economy stemming from a disorderly correction of global imbalances. At the same time, there may be stronger than anticipated positive effects due to the decrease in commodity prices and to the policy measures taken.","Annual HICP inflation was, according to Eurostat’s flash estimate, 0.6% in April, unchanged from March. As explained on earlier occasions, the decline in inflation since last summer primarily reflects the sharp fall in global commodity prices over this period. Moreover, signs of a more broad-based reduction in inflationary pressure are increasingly emerging. Looking ahead, base effects stemming from past energy price movements will play a significant role in the shorter-term dynamics of the HICP. Accordingly, we expect to see headline annual inflation rates declining further and temporarily remaining at negative levels for some months around mid-year. Thereafter, annual inflation rates are expected to increase again. Such short-term dynamics are, however, not relevant from a monetary policy perspective. Looking further ahead, HICP inflation is likely to remain positive and below 2% in 2010, with price developments being dampened by ongoing sluggish demand in the euro area and elsewhere. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term.","The risks surrounding this outlook are broadly balanced. They relate in particular to the risks to the outlook for economic activity as well as to risks to commodity prices.","Turning to the monetary analysis, the latest data confirm the continued deceleration in the pace of underlying monetary expansion. This is signalled, for instance, by the concurrent further declines in the annual growth rates of M3 to 5.1% and of loans to the private sector to 3.2%. The deceleration supports the assessment of diminishing inflationary pressures in the medium term.","Month-on-month developments in M3 and its components have remained volatile, with data for March showing a contraction in most of the respective outstanding amounts. This may partly reflect market participants’ investment responses to the past reduction in the key ECB interest rates, which has reduced the remuneration of short-term deposits and marketable instruments and fostered corresponding shifts in the allocation of funds not only within M3 but also to instruments outside M3.","The outstanding amount of MFI loans to the private sector contracted further in March, reflecting mainly a negative flow of lending to non-financial corporations. The reduced amount of financing is again related mainly to loans with shorter maturities, while the net flow of loans with longer maturities remained positive. The decline in short-term lending is likely to reflect to a large extent lower demand in the wake of a sharp deterioration in economic activity and business prospects at the start of the year. Interest rates on short-term and floating rate bank loans to households and non-financial corporations have declined significantly over recent months, indicating that the transmission of monetary policy impulses to the economy continues. Overall, the latest money and credit data support the assessment that both banks and money-holding sectors are reducing their highly leveraged positions built up in past years.","To sum up, the Governing Council’s decisions today take into account the expectation that price developments will continue to be dampened by the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally. The latest economic data and survey information suggest tentative signs of a stabilisation at very low levels, after a first quarter which was significantly weaker than expected. The world economy, including the euro area, is still undergoing a severe downturn, with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010. This assessment incorporates a number of adverse developments which are likely to materialise over the coming months, such as a further deterioration in labour markets. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing, as money and credit growth have further decelerated in recent months. Against the background of these developments, after today’s decisions we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","All in all, since the intensification of the financial crisis in September 2008, the Eurosystem has taken a series of measures that are unprecedented in nature, scope and timing. As a consequence, we have observed a clear decline in key money market interest rates that euro area banks typically use as benchmarks to reset floating rate loans and price new short-term loans. This in turn has led to sharp declines in rates for such loans to households and non-financial corporations. As the transmission of monetary policy works with lags, our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy has provided ongoing support for households and corporations.","The Governing Council will ensure that, once the macroeconomic environment improves, the measures taken can be quickly unwound and the liquidity provided absorbed so that any threat to price stability over the medium to longer term can be effectively countered in a timely fashion. Indeed, as has been stressed many times, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policies, the latest projections for euro area countries point to continued revisions to budget balance estimates and forecasts. Higher budget deficits and the fiscal impact of financial sector support measures will lead to significantly higher government debt-to-GDP ratios. In addition, updated projections by the Economic Policy Committee of the EU show that most countries face a challenging task in dealing with the budgetary costs of an ageing population. Therefore, it is paramount that countries make a strong and credible commitment to a path of consolidation in order to return to sound fiscal positions, respecting fully the provisions of the Stability and Growth Pact. This will preserve the public’s trust in the sustainability of public finances and will support both the recovery and long-term economic growth. The credibility of fiscal consolidation commitments will be strengthened if they are part of national policy frameworks oriented to the medium term.","Turning to structural policies, it is crucial that the focus is now on strengthening the adjustment capacity and flexibility of the euro area economy in line with the principle of an open market economy. This calls for an accelerated implementation of labour market reforms to facilitate appropriate wage-setting and labour mobility across sectors and regions as well as product market reforms to foster competition and speed up restructuring.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates are appropriate taking into account our decisions of early May, including the enhanced credit support measures, and all the information and analyses which have become available since then. We confirmed our expectation that price developments over the policy-relevant horizon will remain dampened by the marked weakening of economic activity in the euro area and globally. Recent survey information indicates that, following two quarters of very negative growth, economic activity over the remainder of this year is expected to decline at much less negative rates. After a stabilisation phase, positive quarterly growth rates are expected by mid-2010. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis supports the assessment of moderate inflationary pressure, as money and credit growth have further declined on an annual basis. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","Let me now explain our assessment in some more detail, starting with the economic analysis. Reflecting the impact of the financial market turmoil, and in particular a sharp fall in global demand and trade, economic activity weakened considerably in the first quarter of 2009. According to Eurostat’s first estimate, economic activity in the euro area contracted by 2.5% quarter on quarter, after a decline of 1.8% in the fourth quarter of 2008. This will have a significant negative impact on the average growth rate for 2009. However, more recently, there have been improvements in survey data, albeit at very low levels. In line with such evidence, after the extremely weak first quarter, activity over the remainder of this year is expected to decline at much less negative rates. After a stabilisation phase, positive quarterly growth rates are expected by mid-2010.","This assessment is broadly in line with the June 2009 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between -5.1% and -4.1% in 2009 and between -1.0% and 0.4% in 2010. Compared with the March 2009 ECB staff macroeconomic projections, the ranges have been revised downwards, in particular for 2009. A substantial negative carry-over effect from the previous year and the very weak result for the first quarter of 2009 significantly contributed to this downward revision. The projected gradual recovery next year, with rates of growth returning to positive levels by mid-2010, reflects the effects of the significant macroeconomic stimulus under way as well as of the measures taken so far to restore the functioning of the financial system both inside and outside the euro area. Forecasts by international organisations are broadly in line with the June 2009 Eurosystem staff projections, taking into account the results of the first quarter.","In the view of the Governing Council, the risks to the economic outlook are balanced. On the positive side, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus under way and from other policy measures taken. Confidence may also improve more quickly than currently expected. On the other hand, concerns remain relating to the following potential factors: a stronger impact on the real economy from the turmoil in financial markets, more unfavourable developments in labour markets, the intensification of protectionist pressures and, finally, adverse developments in the world economy stemming from a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation was, according to Eurostat’s flash estimate, 0.0% in May, compared with 0.6% in April. As explained on earlier occasions, the further decline in inflation rates was fully anticipated and primarily reflects base effects resulting from the sharp swings in global commodity prices over the past 12 months.","Looking ahead, owing to these base effects, annual inflation rates are projected to decline further and temporarily remain negative over the coming months, before returning to positive territory by the end of 2009. Such short-term movements are, however, not relevant from a monetary policy perspective. Looking further ahead, price and cost developments are expected to remain dampened in the wake of ongoing sluggish demand in the euro area and elsewhere.","This outlook is consistent with the June 2009 Eurosystem staff projections for euro area inflation, in which annual HICP inflation is seen to range between 0.1% and 0.5% in 2009, revised slightly downwards from the March 2009 ECB staff projections. For 2010, Eurosystem staff project annual HICP inflation to range between 0.6% and 1.4%, broadly unchanged from the March 2009 ECB staff projections. Available forecasts from international organisations provide a similar picture.","Against this background, it is again important to stress that the indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to these projections are broadly balanced. On the downside, these risks relate in particular to the outlook for economic activity, while on the upside they relate to higher than expected commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the latest data confirm the continued deceleration in the pace of underlying monetary expansion and thus support the assessment of moderate inflationary pressures. In April, the annual growth rate of M3 declined further to 4.9% and that of loans to the private sector to 2.4%. However, especially with regard to M3 growth, the pace of decline in annual growth rates was slower than in previous months, reflecting a brisk growth in monetary aggregates in April.","The latest developments in M3 components continue to reflect to a large extent the impact of past reductions in key ECB interest rates, which have led to declines both in the levels of different deposit interest rates and in the spreads between them. This has implied, for instance, lower opportunity costs for market participants to shift funds into highly liquid overnight deposits and explains the strengthening of annual M1 growth to 8.4% in April. At the same time, the reduced remuneration of other short-term deposits and marketable instruments continues to foster the allocation of funds to instruments outside M3.","The outstanding amount of MFI loans to the private sector contracted somewhat further in April. This development is again mainly due to a negative flow of short-term lending to non-financial corporations, which partly reflects a lower need for working capital in view of the sharp deterioration in economic activity and business prospects during the first few months of the year, and greater recourse to liquidity buffers in financing such working capital. By contrast, longer-term lending to non-financial corporations remained positive. The past reductions in key ECB rates have continued to be passed on to lending rates to both non-financial corporations and households. The resulting improvement in financing conditions should provide ongoing support for economic activity in the period ahead. However, given the challenges which lie ahead, banks should take appropriate measures to further strengthen their capital bases and, where necessary, take full advantage of the government measures to support the financial sector, in particular as regards recapitalisation.","To sum up, the current key ECB interest rates are appropriate taking into account our decisions of early May, including the enhanced credit support measures, and all the information and analyses which have become available since then. We confirmed our expectation that price developments over the policy-relevant horizon will remain dampened by the marked weakening of economic activity in the euro area and globally. Recent survey information indicates that, following two quarters of very negative growth, economic activity over the remainder of this year is expected to decline at much less negative rates. After a stabilisation phase, positive quarterly growth rates are expected by mid-2010. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check with the outcome of the monetary analysis supports the assessment of moderate inflationary pressure, as money and credit growth have further declined on an annual basis. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","As the transmission of monetary policy works with lags, our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy will provide ongoing support for households and corporations. Once the macroeconomic environment improves, the Governing Council will ensure that the measures taken can be quickly unwound and the liquidity provided absorbed. Hence, any threat to price stability over the medium to longer term can be effectively countered in a timely fashion. As has been emphasised many times, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policies, the latest projections by the European Commission point to a sharp increase in the euro area general government deficit and debt ratios in 2009. The deficit ratio is projected to rise to 5.3% of GDP in 2009 and further to 6.5% in 2010, from 1.9% in 2008, with the debt ratio exceeding 80% of GDP in 2010. A large majority of euro area countries are expected to exceed the 3% of GDP deficit reference value in 2009 and 2010. To ensure trust in the sustainability of public finances, an ambitious and credible adjustment effort will be required to return as soon as possible to sound fiscal positions, supported by a full application of the provisions of the Stability and Growth Pact. The rapid attainment of sound fiscal positions will be necessary to enable countries to deal with the additional fiscal burden owing to demographic ageing as well as the risks arising from government guarantees that were provided to stabilise financial sectors.","Turning to structural policies, there is a strong case for undertaking further efforts to support potential growth in the euro area. It is crucial that the focus is now on strengthening the adjustment capacity and flexibility of the euro area economy in line with the principle of an open market economy. In this respect, the current situation can be seen as a catalyst to accelerate the implementation of necessary domestic reforms, notably labour market reforms to facilitate appropriate wage-setting and labour mobility across sectors and regions, as well as product market reforms to foster competition and speed up restructuring and productivity growth. At the same time, many of the policy measures taken in recent months with a view to supporting specific segments of the economy need to be phased out in a timely manner.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Luxembourg. I would like to thank Governor Mersch for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate taking into account all the information and analyses that have become available since our meeting on 4 June 2009. The fall of annual inflation rates into negative territory in June is in line with previous expectations and reflects mainly temporary effects. After a return to positive inflation rates, we expect price developments to remain dampened over the policy-relevant horizon. Recent data releases and survey information provide further indications that economic activity over the remainder of this year is likely to remain weak but should decline less strongly than was the case in the first quarter of 2009. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid-2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis corroborates the assessment of low inflationary pressure, as money and credit indicators continue to be weak. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","Let me now explain our assessment in further detail, starting with the economic analysis. The data and survey information that have become available since our last press conference in early June have broadly confirmed our previous expectations. Economic activity over the remainder of this year is expected to remain weak but should decline less strongly than was the case in the first quarter of 2009. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid-2010. The significant policy stimuli in all major economic areas should support growth globally, including in the euro area.","In the view of the Governing Council, the risks to the economic outlook are balanced. On the positive side, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly than currently expected. On the other hand, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets, further increases in oil and other commodity prices, the intensification of protectionist pressures, increasingly unfavourable labour markets and, lastly, adverse developments in the world economy stemming from a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation was, according to Eurostat’s flash estimate, -0.1 % in June, compared with 0.0% in May. As explained on previous occasions, the further decline in annual rates of inflation was anticipated and reflects primarily base effects resulting from past sharp swings in global commodity prices.","Looking ahead, owing to these base effects, annual inflation rates are projected to remain temporarily in negative territory over the coming months, before turning positive again. Such short-term movements are not relevant from a monetary policy perspective. Consistent with available forecasts and projections, looking further ahead, inflation is expected to remain in positive territory, while price and cost developments are expected to remain dampened in the wake of ongoing sluggish demand in the euro area and elsewhere. In this respect, indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for inflation are broadly balanced. On the downside they relate, in particular, to the outlook for economic activity, while on the upside they relate to higher than expected commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the latest data confirm a continued deceleration in monetary dynamics. In May, the annual growth rate of M3 declined further to 3.7%, with that of loans to the private sector falling further to 1.8% – the lowest rates since the start of Stage Three of Economic and Monetary Union. This concurrent deceleration supports the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term.","In May, the outstanding amounts of most components of M3 showed a contraction, reflecting, to a large extent, the recent declines in interest rates paid on short-term deposits and marketable instruments and the increased allocation of funds to instruments outside M3 that these may have fostered. Following a substantial strengthening in April, the growth of M1, while having remained strong, also moderated in May. The short-term developments in M3 have been volatile over the past few months. Looking beyond this volatility, the pace of monetary expansion has clearly slowed since the last quarter of 2008.","The flow of bank loans to non-financial corporations and households has remained subdued, reflecting in part the weakening in economic activity and the continued low levels of business and consumer confidence. A moderate monthly contraction in the outstanding amount of loans to non-financial corporations has been observed over recent months. These developments are mostly due to a decline in short-term lending, while the flow of loans with longer maturities has remained slightly positive. In this respect, it is important to note that past reductions in key ECB rates have continued to be passed on through lending rates to both non-financial corporations and households. The resulting improvement in financing conditions should provide ongoing support for economic activity in the period ahead. However, as we have stressed in the past given the challenges that lie ahead, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation.","To sum up, the current rates remain appropriate taking into account all the information and analyses that have become available since our meeting on 4 June 2009. The fall of annual inflation rates into negative territory in June is in line with previous expectations and reflects mainly temporary effects. After a return to positive inflation rates, we expect price developments to remain dampened over the policy-relevant horizon. Recent data releases and survey information provide further indications that economic activity over the remainder of this year is likely to remain weak but should decline less strongly than was the case in the first quarter of 2009. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid-2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis corroborates the assessment of low inflationary pressure, as money and credit indicators continue to be weak. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","As the transmission of monetary policy works with lags, our policy action should progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy will provide ongoing support for households and corporations. The Governing Council would like to recall that the Eurosystem provided a significant amount of liquidity to euro area banks at its recent first 12-month longer-term refinancing operation. This operation at a fixed interest rate of 1% is expected to strengthen further the liquidity position of banks and to support the normalisation of money markets and the extension of credit to the economy alongside the other measures of enhanced credit support. Once the macroeconomic environment improves, the Governing Council will ensure that the measures taken are quickly unwound and that the liquidity provided is absorbed. Hence, any threat to price stability over the medium to longer term can be effectively countered in a timely fashion. As has been emphasised many times, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, the Governing Council welcomes the spring 2009 orientations for euro area fiscal policies as agreed by the euro area finance ministers in June. A return to sound, sustainable public finances, thus strengthening overall macroeconomic stability, must be ensured. Against this background, euro area governments should prepare and communicate ambitious and realistic fiscal exit and consolidation strategies within the framework of the Stability and Growth Pact. In the view of the Governing Council, the structural adjustment process should start in any case not later than the economic recovery. In 2011 the consolidation efforts should be stepped up. To correct the envisaged large fiscal imbalances of euro area countries, structural consolidation efforts will need to exceed significantly the benchmark of 0.5% of GDP per annum set in the Stability and Growth Pact. In countries with high deficits and/or debt ratios the annual structural adjustment should reach at least 1% of GDP.","Turning to structural policies, there is a need to intensify efforts to support potential growth in the euro area. Given the negative impact of the financial crisis on employment, investment and the capital stock, it is crucial to accelerate the implementation of necessary structural reforms. In particular, product market reforms are required to foster competition and speed up restructuring and productivity growth. Furthermore, labour market reforms need to facilitate appropriate wage-setting and labour mobility across sectors and regions. At the same time, many of the policy measures taken in recent months with a view to supporting specific segments of the economy should be phased out in a timely manner. It is crucial that the focus is now on strengthening the adjustment capacity and flexibility of the euro area economy in line with the principle of an open market economy and free competition.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The information and analyses that have become available since our meeting on 2 July 2009 confirm our view that the current rates remain appropriate. As anticipated, annual HICP inflation in July fell further into negative territory, reflecting mainly temporary effects. After a return to positive inflation rates during the second half of the year, we continue to expect price developments to remain subdued over the policy-relevant horizon. Recent data releases and survey information still suggest that economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down. This assessment takes into account adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms the assessment of low inflationary pressure, as money and credit expansion continues to decelerate. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","Let me now explain our assessment in further detail, starting with the economic analysis. The data and survey information that have become available since our meeting on 2 July 2009 have broadly confirmed our previous expectations. While uncertainty is still high, there are increasingly signs that the global recession is bottoming out. As regards the euro area, recent surveys suggest that the pace of contraction is clearly slowing down. However, economic activity over the remainder of this year is expected to remain weak. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. The significant policy stimuli in all major economic areas should support growth globally, including in the euro area.","In the view of the Governing Council, uncertainty remains high and we have to be prepared for ongoing volatility in incoming data. Overall, the risks to this outlook remain balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly than currently expected. On the downside, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets, renewed increases in oil and other commodity prices, the intensification of protectionist pressures, more unfavourable than expected labour market conditions and, lastly, adverse developments in the world economy stemming from a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation was, according to Eurostat’s flash estimate, -0.6 % in July, compared with -0.1% in June. This further decline in annual rates of inflation was anticipated and reflects primarily base effects resulting from the peaks observed in global commodity prices a year ago.","Looking ahead, owing to these base effects, annual inflation rates are projected to remain temporarily in negative territory, before turning positive again later this year. However, such short-term movements are not relevant from a monetary policy perspective. Consistent with available forecasts and projections, looking further ahead, inflation is expected to remain in positive territory, while price and cost developments are expected to remain subdued in the wake of ongoing sluggish demand in the euro area and elsewhere. In this respect, indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for inflation are broadly balanced. They relate, in particular, to the outlook for economic activity and to higher than expected commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the latest data confirm the ongoing deceleration in broad money and credit growth. The annual growth rates of M3 and of loans to the private sector recorded in June – 3.5% and 1.5% respectively – are the lowest since the start of Stage Three of EMU. These developments support the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term.","The declining pace of monetary expansion since the last quarter of 2008 continues to be accompanied by volatility in the short-term developments of M3 and its components. This reflects to a large extent the impact that absolute and relative changes in interest rates have had on the allocation of funds between financial investments inside and outside M3 and between the different deposit categories within M3. In this respect, the shift in allocation from short-term time deposits to overnight deposits within M3 has led to a further substantial strengthening of annual M1 growth in June.","The flow of bank loans to the non-financial private sector remained subdued in June, albeit with differences across borrowing sectors. The flow of loans to non-financial corporations turned substantially more negative owing to a sharp contraction in short-term lending. At the same time, the flow of loans to households was slightly more positive than last month. The ongoing uncertainty seems to have dampened borrowers’ demand for financing. However, according to the latest euro area bank lending survey, lenders tightened their credit standards to a significantly lesser extent. Given the challenges that lie ahead, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation.","To sum up, the information and analyses that have become available since our meeting on 2 July 2009 confirm the view of the Governing Council that the current key ECB interest rates remain appropriate. As anticipated, annual HICP inflation in July fell further into negative territory, reflecting mainly temporary effects. After a return to positive inflation rates during the second half of the year, we continue to expect price developments to remain subdued over the policy-relevant horizon. Recent data releases and survey information still suggest that economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down. This assessment takes into account adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure, as money and credit expansion continues to decelerate. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","As the transmission of monetary policy works with lags, our policy action should progressively feed through to the economy in full. Hence, with all the measures taken, including our covered bond purchases, monetary policy will provide ongoing support for households and corporations. Once the macroeconomic environment improves, the Governing Council will take care that the measures taken are quickly unwound and that the ample liquidity provided is absorbed. Hence, any threat to price stability over the medium to longer term will be effectively countered in a timely fashion. The Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Regarding fiscal policy, we welcome the position of the Eurogroup that, given the current economic outlook and projected public deficit and debt developments, further fiscal stimulus is not warranted. Budget plans for 2010, which are currently being finalised in a number of countries, and medium-term consolidation strategies must reflect a commitment to a swift return to sound and sustainable public finances. Accordingly, governments should prepare and communicate ambitious and realistic fiscal exit and consolidation strategies within the framework of the Stability and Growth Pact. The structural adjustment process should start, in any case, not later than the economic recovery and in 2011 the consolidation efforts should be stepped up. Structural consolidation efforts will need to exceed significantly the benchmark of 0.5% of GDP per annum set in the Stability and Growth Pact. In countries with high deficits and/or debt ratios the annual structural adjustment should reach at least 1% of GDP. Given the risks of lower potential economic growth in the euro area for a prolonged period of time, governments should adjust public expenditures appropriately to the new macroeconomic conditions and reverse the sharp rises in public expenditure ratios as soon as possible. This is necessary also to prepare budgets for future ageing-induced expenditure burdens.","Turning to structural policies, there is a need to intensify structural reform efforts in order to support sustainable growth in the euro area. Appropriate wage-setting and sufficient flexibility to get the unemployed back into work are crucial to prevent the crisis from having a lasting negative impact on labour markets. It is therefore essential to create appropriate incentives to work. At the same time, policies to speed up restructuring and investment, in line with the principle of an open market economy and free competition, will create the business opportunities and productivity gains needed to spark a sustained recovery.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate, taking into account all the information and analyses that have become available since our last meeting on 6 August 2009. In this respect, at today’s meeting we also decided that the rate for the twelve-month longer-term refinancing operation to be allotted on 30 September 2009 will be the prevailing rate on the main refinancing operations. This decision, which continues to guarantee liquidity support to the banking system of the euro area for an extended period of time at very favourable conditions, should promote the extension of credit to the euro area economy and, therefore, further underpin its recovery. Price developments are expected to remain subdued over the policy-relevant horizon. Annual HICP inflation was slightly negative in August according to Eurostat’s flash estimate. This reflects mainly the base effects of the strong rise in commodity prices in 2008. The return of HICP inflation to moderate positive rates is expected within the coming months. At the same time, the latest information supports our view that there are increasing signs of stabilisation in economic activity in the euro area and elsewhere. This is consistent with the expectation that the significant contraction in economic activity has come to an end and is now followed by a period of stabilisation and very gradual recovery. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit expansion continues to decelerate. Against this background, we expect price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","Let me now explain our assessment in further detail, starting with the economic analysis. Following the strong negative growth rates observed around the turn of the year, according to Eurostat’s first estimate, economic activity in the euro area declined only slightly in the second quarter of 2009, contracting by 0.1% compared with the previous quarter. Survey indicators for the third quarter of 2009 support the view that the euro area economy is stabilising further. In the near term, the euro area should continue to benefit from a recovery in exports, the significant macroeconomic stimulus under way and the measures taken so far to restore the functioning of the financial system. In addition, the inventory cycle is expected to contribute positively. However, uncertainty remains high and the persistent volatility in incoming data warrants a cautious interpretation of available information. Overall, the recovery is expected to be rather uneven, given the temporary nature of some of the supporting factors and the ongoing balance sheet correction in the financial and non-financial sectors of the economy, both inside and outside the euro area.","This assessment is broadly in line with the September 2009 ECB staff macroeconomic projections for the euro area. According to these projections, average annual real GDP growth will range between -4.4% and -3.8% in 2009 and between -0.5% and +0.9% in 2010. Compared with the June 2009 Eurosystem staff macroeconomic projections, this implies an upward revision of the ranges for both 2009 and 2010, reflecting mainly the recent, more positive developments and information. Forecasts by international organisations are broadly in line with the September 2009 ECB staff projections.","In the view of the Governing Council, the risks to this outlook remain broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly, labour market deterioration may be less marked than currently expected and foreign demand may prove to be stronger than projected. On the downside, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the still strained financial markets, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and a disorderly correction of global imbalances. At the same time, the uncertainty surrounding this outlook remains higher than usual.","With regard to price developments, annual HICP inflation was, according to Eurostat’s flash estimate, -0.2% in August , compared with -0.7% in July. This development is in line with previous expectations and reflects largely base effects resulting from the movements in global commodity prices a year ago. Owing to these base effects, annual inflation rates are projected to turn positive again within the coming months. Looking further ahead, inflation is expected to remain in positive territory, with overall price and cost developments staying subdued in the wake of ongoing sluggish demand in the euro area and elsewhere. In this context, it is important to re-emphasise that the indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","This outlook is consistent with the September 2009 ECB staff projections for euro area inflation. In these projections, annual HICP inflation is projected to range between 0.2% and 0.6% in 2009 and between 0.8% and 1.6% in 2010, revised slightly upwards from the June 2009 Eurosystem staff projections, reflecting mainly upward revisions to energy prices. Available forecasts from international organisations provide a broadly similar picture.","Risks to the outlook for price developments remain broadly balanced. They relate, in particular, to the outlook for economic activity and to higher than expected commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the latest data confirm a continued deceleration in both broad money and credit growth. In July, the annual growth rates of M3 and loans to the private sector declined further to 3.0% and 0.6% respectively, reaching new lows since 1999. These developments support the assessment of a slower underlying pace of monetary expansion and low inflationary pressures over the medium term.","The short-term developments of M3 and its components have remained volatile. The recent changes in interest rates paid on the different instruments included in M3 have continued to underlie the strong shifts in the allocation of funds from, in particular, short-term time deposits to overnight deposits. The deceleration in annual M3 growth has thus continued to combine with a substantial further strengthening of annual M1 growth, which in July rose to 12.1%. In addition, the relatively steep yield curve and the re-emergence of risk appetite, reflected particularly in the increase in stock prices over the past few months, may have dampened M3 growth to some extent.","The overall flow of bank loans to the non-financial private sector remained subdued in July, with the differences across borrowing sectors becoming more marked. The flow of loans to households remained slightly positive, whereas in the case of non-financial corporations the flow of loans was negative again. The decline in loans to non-financial corporations continues to reflect mainly a strong net redemption of loans with a shorter maturity, while lending and borrowing at longer maturities remained positive. The fall in production and trade and the ongoing uncertainty in the business outlook are likely to have dampened firms’ demand for financing. Given the normal lag between a recovery in economic activity and a pick-up in loans to enterprises, further weak developments in loans to non-financial corporations in the coming months appear likely. At the same time, a gradual improvement in financing conditions, as lower market interest rates continue to be passed on in lower bank lending rates, should support the demand for credit in the period ahead. Against the background of highly demanding challenges, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation.","To sum up, the information and analyses that have become available since our meeting on 6 August 2009 confirms the view of the Governing Council that the current key ECB interest rates remain appropriate. In this respect, at today’s meeting we also decided that the rate for the twelve-month longer-term refinancing operation to be allotted on 30 September 2009 will be the prevailing rate on the main refinancing operations. Price developments are expected to remain subdued over the policy-relevant horizon. Annual HICP inflation was slightly negative in August. This reflects mainly the base effects of the strong rise in commodity prices in 2008. The return of HICP inflation to moderate positive rates is expected within the coming months. At the same time, the latest information supports our view that there are increasing signs of stabilisation in economic activity in the euro area and elsewhere. This is consistent with the expectation that the significant contraction in economic activity has come to an end and is now followed by a period of stabilisation and very gradual recovery . Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit expansion continues to decelerate. Against this background, we expect price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households.","As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy is providing ongoing support for households and corporations. Once the macroeconomic environment improves, the Governing Council will make sure that the measures taken are unwound in a timely fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. By so doing, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, the latest quarterly euro area data and developments in individual countries confirm a substantial deterioration of fiscal positions in 2009, which is projected to continue in 2010. In finalising their 2010 budgets and medium-term fiscal plans, governments must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances in line with the Stability and Growth Pact. In particular, it is crucial that ambitious and realistic fiscal exit and consolidation strategies, underpinned by concrete structural measures, are put in place. The structural adjustment process should start, in any case, not later than the economic recovery and the consolidation efforts should be stepped up in 2011. Structural consolidation efforts will need to exceed significantly the benchmark of 0.5% of GDP per annum set in the Stability and Growth Pact. In countries with high deficits and/or debt ratios, the annual structural adjustment should reach at least 1% of GDP. The focus of the structural measures should lie on the expenditure side, as in most euro area countries tax and social contribution rates are already high.","Turning to structural policies, it is likely that the financial crisis will affect the growth potential in the euro area. This outlook reinforces the need to strengthen reform efforts to support sustainable growth and employment in the euro area. It requires, in particular, appropriate wage-setting, sufficient labour market flexibility and effective incentives to work. At the same time, policies that enhance competition and innovation are urgently needed to speed up restructuring and investment and to create the business opportunities and productivity gains needed to ensure a sustained recovery. In this respect, an appropriate restructuring and consolidation of the banking sector plays an important role. Sound balance sheets, solid risk management, and transparent and robust business models are key to strengthening the financial soundness of banks and their resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Venice. I would like to thank Governor Draghi for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. The incoming information and analyses since our last meeting in early September have confirmed our previous assessment. While annual HICP inflation was still slightly negative in September, according to Eurostat’s flash estimate, it is expected to turn positive again in the coming months and to remain at moderately positive rates over the policy-relevant horizon. At the same time, the latest information further supports our view that the euro area economy is stabilising and is expected to recover at a gradual pace. However, uncertainty remains high. As regards medium to longer-term inflation expectations, they remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit expansion continues to moderate. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","Let me now explain our assessment in further detail, starting with the economic analysis. Available survey indicators continue to signal an ongoing stabilisation of economic activity. In particular, the euro area should benefit from a recovery in exports, the significant macroeconomic stimulus under way and the measures taken to restore the functioning of the financial system. In addition, following the substantial negative contributions in the first half of 2009, the inventory cycle is expected to contribute positively to real GDP growth in the second half of the year. However, uncertainty remains high and the volatility in incoming data warrants a cautious interpretation of the available information. Overall, the recovery is expected to remain rather uneven. It will be supported in the short term by a number of temporary factors but is likely to be affected over the medium term by the process of ongoing balance sheet correction in the financial and the non-financial sector of the economy, both inside and outside the euro area.","In the view of the Governing Council, the risks to this outlook remain broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly, the labour market deterioration may be less marked than previously expected and foreign demand may prove to be stronger than projected. On the downside, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation stood at -0.3% in September, according to Eurostat’s flash estimate, compared with -0.2% in August. The current negative inflation rates are in line with previous expectations and reflect largely base effects resulting from the movements in global commodity prices a year ago. Also owing to base effects, annual inflation rates are projected to turn positive again in the coming months. Thereafter, over the policy-relevant horizon, inflation is expected to remain in positive territory, with overall price and cost developments staying subdued reflecting ongoing sluggish demand in the euro area and elsewhere. In this context, it is important to re-emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to this outlook remain broadly balanced. They relate, in particular, to the outlook for economic activity and to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the latest data confirm that developments in broad money and credit growth remain subdued. In August, the annual growth of M3 and loans to the private sector declined further to historically low rates of 2.5% and 0.1% respectively. This parallel deceleration in money and credit growth confirms our previous assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term.","The ongoing deceleration in annual M3 growth has continued to be accompanied by a strengthening in annual M1 growth, which in August rose further to 13.6%. The strength of M1 reflects the fact that narrower spreads between the rates on different short-term deposits have fostered shifts in the allocation of funds from, in particular, short-term time deposits to overnight deposits. At the same time, the steep slope of the yield curve may have supported shifts from M3 to longer-term deposits and securities outside M3.","The overall flow of bank loans to the non-financial private sector remained subdued in August. In the case of households, the latest data suggest that the decline in loan growth has been levelling off at low rates of expansion. In the case of non-financial corporations, following a few months of negative flows, the flow of loans was again slightly positive in August. Looking through the volatility in monthly data, loan growth continues to be very subdued. This is in line with the lag that normally prevails between trends in economic activity and developments in loans to enterprises. In this respect, given the subdued levels of production and trade, as well as the ongoing uncertainty with regard to the business outlook, further weak developments in loans to non-financial corporations in the coming months appear likely. At the same time, the ongoing improvement in financing conditions should support the demand for credit in the period ahead. Against the background of highly demanding challenges, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation.","To sum up, the current rates remain appropriate. The incoming information and analyses since our last meeting in early September have confirmed our previous assessment. While annual HICP inflation was still slightly negative in September, according to Eurostat’s flash estimate, it is expected to turn positive again in the coming months and to remain at moderately positive rates over the policy-relevant horizon. At the same time, the latest information further supports our view that the euro area economy is stabilising and is expected to recover at a gradual pace. However, uncertainty remains high. As regards medium to longer-term inflation expectations, they remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. Cross-checking the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit expansion continues to moderate. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy in full. Hence, with all the measures taken, including our latest 12-month longer-term refinancing operation of 30 September, monetary policy is providing strong ongoing support to the economy. Once the macroeconomic environment improves, the Governing Council will make sure that the measures taken are unwound in a timely fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. By so doing, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, the need for ambitious and realistic fiscal exit and consolidation strategies is becoming increasingly pressing. It is vital that governments put in place concrete structural measures and convincingly communicate that they are committed to ensuring the sustainability of public finances. Governments should design their consolidation plans in line with the provisions of the Stability and Growth Pact, ensuring that consolidation starts as soon as possible and at the latest when the recovery takes hold. These plans should also be accompanied by a strengthening of national budgetary frameworks. Consolidation efforts should be stepped up in 2011 and will need to exceed significantly the benchmark of 0.5% of GDP per annum set in the Stability and Growth Pact. In countries with high deficit and/or debt ratios, the annual structural adjustment should reach at least 1% of GDP. In view of the rapidly increasing public expenditure ratios, as well as projected further expenditure pressures owing to higher interest burdens and ageing-related costs, countries’ structural measures should focus on the expenditure side.","Turning to structural reforms, in all countries more efforts are crucial to support sustainable growth and employment as it is likely that the financial crisis has affected the productive capacity of our economies. In particular, appropriate wage-setting, sufficient labour market flexibility and effective incentives to work are required. At the same time, policies that enhance competition and innovation are urgently needed to speed up restructuring and investment and to create the business opportunities and productivity gains needed to ensure a sustained recovery. An appropriate restructuring and consolidation of the banking sector should also play an important role. Sound balance sheets, sound risk management, and transparent as well as robust business models are key to strengthening the financial soundness of banks and their resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference today. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","On the basis of its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. The incoming information and analyses that have become available since our meeting in early October have confirmed our expectations. While annual HICP inflation was -0.1% in October, according to Eurostat’s flash estimate, it is expected to turn positive again in the coming months and to remain at moderately positive rates over the policy-relevant horizon. At the same time, the latest information continues to signal an improvement in economic activity in the second half of this year. The Governing Council expects the euro area economy in 2010 to recover at a gradual pace, recognising that the outlook remains subject to high uncertainty. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","Let me now explain our assessment in greater detail, starting with the economic analysis. Available data and survey-based indicators continue to signal an improvement in economic activity in the second half of this year. In particular, the euro area should benefit from the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. Taking into account all available information, in the second half of this year, quarterly real GDP growth rates could be back in positive territory. However, uncertainty remains high as a number of the supporting factors are of a temporary nature. Looking through the volatility of incoming data, the euro area economy is expected to recover at a gradual pace in 2010, as it is likely to be affected over the medium term by the process of ongoing balance sheet adjustment in the financial and the non-financial sector, both inside and outside the euro area.","In the view of the Governing Council, the risks to this outlook remain broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly, the labour market deterioration may be less marked than previously expected and foreign demand may prove to be stronger than projected. On the downside, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, annual HICP inflation stood at -0.1% in October, according to Eurostat’s flash estimate, compared with -0.3% in September. The current negative inflation rates are in line with previous expectations and reflect mainly movements in global commodity prices over the last year. In the coming months, annual inflation rates are projected to turn positive again, also relating to base effects. Thereafter, over the policy-relevant horizon, inflation is expected to remain positive, with overall price and cost developments staying subdued reflecting ongoing sluggish demand in the euro area and elsewhere. In this context, it is important to re-emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to this outlook remain broadly balanced. They relate, in particular, to the outlook for economic activity and to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the annual growth rates of M3 and loans to the private sector declined further in September, to 1.8% and -0.3% respectively. These concurrent declines support the assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term.","In the next few months, the annual growth rates of monetary aggregates will most likely be affected downwards by base effects that are associated with the intensification of the financial turmoil one year ago. More fundamentally, however, the growth of M1 and M3 continues to reflect the current constellation of interest rates. While the narrow spread between the rates on different short-term deposits fosters shifts in the allocation of funds to the most liquid assets contained in M1, the steep slope of the yield curve also encourages such shifts from M3 to longer-term deposits and securities outside M3.","The annual growth rate of bank loans to the non-financial private sector turned slightly negative in September, with annual loan growth to both non-financial corporations and households declining further and being negative. At the same time, the monthly flows of loans to households remained positive and even increased, while those of loans to non-financial corporations were negative. In the case of households, the latest data provide further confirmation of a levelling-off at low rates. In the case of non-financial corporations, the subdued levels of production and trade, as well as the ongoing uncertainty surrounding the business outlook, continue to dampen firms’ demand for bank financing, a tendency which is likely to prevail in the coming months. In this respect, it is worthwhile to note that the growth of loans to enterprises typically only picks up with some lag compared with the cycle in economic activity. At the same time, the ongoing improvement in financing conditions should support the demand for credit in the period ahead. Against the background of highly demanding challenges, banks should take appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government measures to support the financial sector, particularly as regards recapitalisation.","To sum up, the current rates remain appropriate. The incoming information and analyses that have become available since our meeting in early October have confirmed our expectations. While annual HICP inflation was -0.1% in October, according to Eurostat’s flash estimate, it is expected to turn positive again in the coming months and to remain at moderately positive rates over the policy-relevant horizon. At the same time, the latest information continues to signal an improvement in economic activity in the second half of this year. The Governing Council expects the euro area economy in 2010 to recover at a gradual pace, recognising that the outlook remains subject to high uncertainty. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. Cross-checking the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","As the transmission of monetary policy works with lags, we expect that our policy action will progressively feed through to the economy. Hence, with all the measures we have taken, monetary policy has been supporting the availability of liquidity and the recovery of the euro area economy. Looking ahead, and taking into account the improved conditions in financial markets, not all our liquidity measures will be needed to the same extent as in the past. Accordingly, the Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term. By so doing, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, many euro area governments are faced with high and sharply rising fiscal imbalances. If not addressed by a clear and credible exit strategy, this could seriously risk undermining public confidence in the sustainability of public finances and the economic recovery. The very large government borrowing requirements carry the risk of triggering rapid changes in market sentiment, leading to less favourable medium and long-term interest rates. This in turn would dampen private investment and thereby weaken the foundations for a return to sustained growth. Moreover, high public deficits and debts may complicate the task of the single monetary policy to maintain price stability. The Governing Council therefore calls upon governments to communicate and implement in a timely fashion ambitious fiscal exit and consolidation strategies based on realistic growth assumptions, with a strong focus on expenditure reforms. Tax cuts should only be considered over the medium term, when countries have regained sufficient room for budgetary manoeuvre. In this regard, the recent ECOFIN Council conclusions, which call for consolidation to start in 2011 at the latest and to go well beyond the structural benchmark of 0.5% of GDP per annum, represent the minimum requirement for all euro area countries. The success of fiscal adjustment strategies will also depend crucially on the transparency of the budgetary procedures and the reliability and completeness of government finance statistics. This is an area in which quick and decisive progress is indispensable for the countries concerned and for the euro area as a whole.","Turning to structural reforms, in all countries more efforts are crucial to support sustainable growth and employment as it is likely that the financial crisis has affected the productive capacity of our economies. Moderate wage-setting, sufficient labour market flexibility and effective incentives to work are required in order to avoid significantly higher structural unemployment over the coming years. Policies that enhance competition and innovation are also urgently needed to speed up restructuring and investment and to create new business opportunities. An appropriate restructuring of the banking sector should also play an important role. Sound balance sheets, effective risk management, and transparent as well as robust business models are key to strengthening banks’ resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference today. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 5 November 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information also confirms the expected improvement in economic activity in the second half of this year, with euro area real GDP growth returning to positive territory in the third quarter of 2009. However, some of the factors supporting the recovery at present are of a temporary nature. The Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to high uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","At today’s meeting we also decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as is needed – and at least until the third maintenance period of 2010 ends on 13 April. We will continue to use this tender procedure in our special-term refinancing operations with a maturity of one maintenance period, which will continue for at least the first three maintenance periods of 2010. Moreover, we decided that the rate in the last 12-month longer-term refinancing operation, to be allotted on 16 December 2009, will be fixed at the average minimum bid rate of the MROs over the life of this operation. Finally, as regards longer-term refinancing operations in the first quarter of 2010, we decided to carry out the last six-month longer-term refinancing operation on 31 March 2010. This operation will be carried out using a full allotment fixed rate tender procedure, as will the regular monthly three-month longer-term refinancing operations already announced for the first quarter of 2010.","Further operational details on these decisions can be found in a press release that will be posted on our website after this press conference.","The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past. With these decisions, the Eurosystem continues to provide liquidity support to the banking system of the euro area for an extended period at very favourable conditions and to facilitate the provision of credit to the euro area economy.","Let me now explain our assessment in greater detail, starting with the economic analysis. Economic activity in the euro area improved further in the third quarter of 2009, with real GDP growth returning to positive territory following five quarters of contraction. According to Eurostat’s first estimate, real GDP increased by 0.4 % quarter on quarter. Available survey data suggest that the recovery is continuing during the fourth quarter of 2009. At present, the euro area is benefiting from the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. However, a number of the supporting factors are of a temporary nature and activity is likely to be affected for some time to come by the ongoing process of balance sheet adjustment in the financial and the non-financial sector, both inside and outside the euro area. For this reason, the euro area economy is expected to grow only at a moderate pace in 2010, and the recovery process is likely to be uneven.","Eurosystem staff project annual real GDP growth of between -4.1% and -3.9% in 2009, between +0.1% and +1.5% in 2010, and between +0.2% and +2.2% in 2011. The range for 2010 has been revised upwards compared with the September 2009 ECB staff macroeconomic projections. Forecasts by international organisations are broadly in line with the December 2009 Eurosystem staff projections.","The Governing Council continues to view the risks to this outlook as broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve further and foreign trade may recover more strongly than projected. On the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of disruptive market movements related to the correction of global imbalances.","With regard to price developments, as expected, euro area annual HICP inflation has turned positive again after five months of negative rates. According to Eurostat’s flash estimate, it stood at +0.6% in November, up from -0.1% in October. The rise mainly reflects upward base effects stemming from the drop in global commodity prices a year ago. Inflation is expected to rise further in the near term, mainly owing to upward base effects in the energy and food components. Looking further ahead, inflation is expected to remain moderate over the policy-relevant horizon, with overall price, cost and wage developments staying subdued in line with a slow recovery in demand in the euro area and elsewhere. In this context, it is important to re-emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Consistent with this assessment, the December 2009 Eurosystem staff projections foresee annual HICP inflation of 0.3% in 2009, between 0.9% and 1.7% in 2010, and between 0.8% and 2.0% in 2011. Compared with the September 2009 ECB staff projections, the inflation projections for 2010 remain largely unchanged. Available forecasts from international organisations provide a broadly similar picture.","Risks to this outlook remain broadly balanced. They relate, in particular, to the outlook for economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the data for October confirm the ongoing decline in the annual growth rates of M3 and loans to the private sector, to 0.3% and -0.8% respectively. These concurrent declines continue to support the assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. At the same time, the annual growth rate of M1 was 11.8% in October 2009, down from 12.8% in September, mainly reflecting a base effect.","The current decline in the annual growth rates of monetary aggregates is influenced by a number of special factors and is thereby likely to overstate the deceleration in the underlying pace of monetary expansion. First, base effects associated with the intensification of the financial turmoil in autumn 2008 have had a downward effect on the annual growth rate of M3 in the past two months. Second, and more fundamentally, the steep slope of the yield curve provides an incentive to shift funds out of M3 into longer-term deposits and securities, thereby dampening M3 growth. The current constellation of interest rates also continues to trigger shifts of funds within M3, as the narrow spread between the rates on different short-term deposits reduces the opportunity costs of holding the most liquid assets contained in M1.","The annual growth rate of bank loans to the non-financial private sector turned somewhat more negative in October. In the case of loans to households, the latest data provide further confirmation of a levelling-off at low rates of growth. As regards loans to non-financial corporations, it is worthwhile to note that the growth of loans to enterprises typically picks up with some lag compared with the cycle in economic activity. In this respect, the still subdued levels of production and trade, as well as the ongoing uncertainty surrounding the business outlook, are likely to dampen firms’ demand for bank financing also in the coming months, especially for short-term loans. At the same time, overall financing conditions continue to improve, which should support the demand for loans in the period ahead. Banks are currently faced with the challenge of managing the size and structure of their overall balance sheets, and at the same time ensuring the availability of credit to the non-financial sector. Against the background of their improved liquidity situation and access to market financing, banks should address this challenge by taking appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government support measures for recapitalisation.","To sum up, the current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 5 November 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information also confirms the expected improvement in economic activity in the second half of this year, with euro area real GDP growth returning to positive territory in the third quarter of 2009. However, some of the factors supporting the recovery at present are of a temporary nature. The Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to high uncertainty. Cross-checking the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.","With all the measures we have taken in response to the intensification of the financial crisis, we have supported both the availability of liquidity to the banking sector and the recovery of the euro area economy. As the transmission of monetary policy works with lags, we expect that our policy action will continue to progressively feed through to the economy. We will continue our enhanced credit support to the banking system, while taking into account the ongoing improvement in financial market conditions and avoiding distortions associated with maintaining non-standard measures for too long. Looking ahead, the Governing Council will gradually phase out, at the appropriate time, the extraordinary liquidity measures that are not needed to the same extent as in the past. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. In this way, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, we re-emphasise how important it is for governments to develop, communicate and implement ambitious fiscal consolidation strategies in a timely manner. These strategies must be based on realistic output growth assumptions and focus on structural expenditure reforms, not least with a view to coping with the budgetary burden associated with an ageing population. As agreed by the ECOFIN Council on 2 December 2009, governments need to set out concrete and quantifiable adjustment measures that will lead to a sustainable correction of fiscal imbalances. Several countries will have to start consolidation in 2010, and all others in 2011 at the latest.","With regard to structural reforms, most estimates indicate that the financial crisis has reduced the productive capacity of our economies, and will continue to do so for some time to come. In order to support sustainable growth and employment, labour market flexibility and more effective incentives to work will be needed. Furthermore, policies that enhance competition and innovation are also urgently needed to speed up restructuring and investment and to create new business opportunities. An appropriate restructuring of the banking sector should also play an important role. Sound balance sheets, effective risk management, and transparent as well as robust business models are key to strengthening banks’ resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our first press conference in 2010. Let me take this opportunity to wish you all a Happy New Year. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 3 December 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that towards the end of 2009 euro area economic activity continued to expand. However, some of the factors supporting the growth in real GDP are of a temporary nature. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, given the ongoing parallel decline in money and credit growth. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.4% quarter-on-quarter increase in real GDP in the third quarter of 2009, the latest information confirms that towards the end of last year economic activity in the euro area continued to expand. The euro area has been benefiting from a turn in the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. However, a number of the supporting factors are of a temporary nature. Furthermore, there is likely to be a drag on activity for some time to come on account of the ongoing process of balance sheet adjustment in the financial and non-financial sectors, both inside and outside the euro area. In addition, low capacity utilisation rates are likely to dampen investment, and unemployment in the euro area is expected to increase somewhat further, thereby lowering consumption growth. For these reasons, the euro area economy is expected to grow only at a moderate pace in 2010 and the recovery process could be uneven.","The Governing Council continues to view the risks to this outlook as broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve further, and the global economy as well as foreign trade may recover more strongly than projected. On the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of disruptive market movements related to the correction of global imbalances.","With regard to price developments, as expected, euro area annual HICP inflation increased further in December 2009 to stand at 0.9%, after 0.5% in November. The rise mainly reflects upward base effects stemming mostly from the drop in global energy prices a year ago. Inflation is expected to remain around 1% in the near term. Looking further ahead, inflation is expected to remain moderate over the policy-relevant horizon, with overall price, cost and wage developments staying subdued in line with a slow recovery in demand in the euro area and elsewhere. In this context, it is important to emphasise, once again, that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to this outlook remain broadly balanced. They relate, in particular, to the outlook for economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, both the annual growth rates of M3 and loans to the private sector were negative in November, standing at -0.2% and -0.7% respectively. The concurrent declines to historically low growth rates recorded in these two series over the past months support the assessment of a decelerating underlying pace of monetary expansion and low inflationary pressures over the medium term. Looking ahead, M3 and credit growth are likely to remain very weak or negative for some time to come.","The decline in actual monetary growth is likely to overstate the deceleration in the underlying pace of monetary expansion. This is due to the continued steep slope of the yield curve, which explains shifts of funds out of M3 into longer-term deposits and securities. At the same time, the interest rate constellation continues to foster divergent developments in the main components of M3, as the narrow spreads between the rates on different short-term bank deposits reduce the opportunity costs of shifting funds from, for instance, short-term time deposits into overnight deposits. As a result, M1 continued to grow at a robust annual rate of 12.6% in November, when annual M3 growth turned negative.","The negative annual growth of bank loans to the private sector conceals a return to positive annual rates of growth in the case of loans to households, while the annual growth of loans to non-financial corporations became more negative. Such divergence remains in line with business cycle regularities, with turning points in the growth of loans to enterprises typically lagging those in economic activity. In the case of households, the latest data provide further confirmation of a levelling-off at low rates. In the case of non-financial corporations, the decline in loans continues to reflect mainly a strong net redemption of loans with a shorter maturity, while lending and borrowing at longer maturities remained positive. The subdued levels of production and trade, as well as the ongoing uncertainty surrounding the business outlook, will probably continue to dampen firms’ demand for bank financing in the months to come. In the meantime, financing conditions for enterprises have improved over recent months in terms of the cost of both bank credit and market financing. In this respect, the continued negative flows in short-term bank loans to non-financial corporations observed in recent months may partly reflect better possibilities for substitution with different sources of longer-term financing.","Banks have continued to reduce the size of their overall balance sheets, mainly through downsizing the assets held vis-à-vis other banks. The challenge remains to adjust the size and structure of balance sheets while ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen further their capital bases and, where necessary, take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 3 December 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that towards the end of 2009 euro area economic activity continued to expand. However, some of the factors supporting the growth in real GDP are of a temporary nature. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to uncertainty. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, given the ongoing parallel decline in money and credit growth. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","We will continue our enhanced credit support to the banking system, while taking into account the ongoing improvement in financial market conditions and avoiding distortions associated with maintaining non-standard measures for too long. The Governing Council will also continue to implement the gradual phasing-out of the extraordinary liquidity measures that are not needed to the same extent as in the past. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, many euro area governments are faced with high and sharply rising fiscal imbalances. The very large government borrowing requirements carry the risk of triggering rapid changes in market sentiment, leading to less favourable medium and long-term market interest rates. This, in turn, would dampen private investment and thereby weaken the foundations for sustained growth. Moreover, high levels of public deficit and debt would place an additional burden on monetary policy and undermine the credibility of the provisions of both the Treaty on European Union and the Stability and Growth Pact as a key pillar of Economic and Monetary Union. The Governing Council therefore calls upon governments to decide and implement in a timely fashion ambitious fiscal exit and consolidation strategies based on realistic growth assumptions, with a strong focus on expenditure reforms. Tax cuts should only be considered over the medium term, when countries have regained sufficient room for budgetary manoeuvre. In this regard, current government commitments to start consolidation in 2011 at the latest and to go well beyond the structural benchmark for adjustment of 0.5% of GDP per annum represent the minimum requirement for all euro area countries. The success of fiscal adjustment strategies will also depend, crucially, on appropriate national budgetary rules and institutions and requires transparent budgetary procedures, as well as reliable and complete government finance statistics.","Turning to structural reforms, an appropriate restructuring of the banking sector should play an important role. Sound balance sheets, effective risk management, and transparent as well as robust business models are key to strengthening banks’ resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.","The Eurosystem will submit its response to the European Commission’s public consultation on the EU 2020 strategy, which is designed as a successor to the current Lisbon strategy. To address future challenges, the EU 2020 strategy should focus on raising potential growth and creating high levels of employment through well-functioning labour and product markets, sound financial systems and sustainable fiscal policies. The aim is to achieve a highly competitive social market economy, as spelled out in the Treaty.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference today. We will now report on the outcome of today’s meeting of the Governing Council.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 14 January 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that euro area economic activity continued to expand around the turn of the year. Looking ahead, the Governing Council expects the euro area economy to grow at a moderate pace in 2010. The recovery process is likely to be uneven and the outlook remains subject to uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Let me now explain our assessment in greater detail, starting with the economic analysis. The latest information confirms that economic activity in the euro area continued to expand around the turn of the year. The euro area has been benefiting from a turn in the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. However, these stimuli will unwind over time, while activity is likely to be adversely affected by the ongoing process of balance sheet adjustment in the financial and non-financial sectors, both inside and outside the euro area. In addition, low capacity utilisation rates are likely to dampen investment, and unemployment in the euro area is expected to increase somewhat further, thereby lowering consumption growth. For these reasons, the euro area economy is expected to grow only at a moderate pace in 2010 and the recovery process could be uneven.","The Governing Council continues to view the risks to this outlook as broadly balanced. On the upside, confidence may improve more than expected, and both the global economy and foreign trade may recover more strongly than projected. Furthermore, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. On the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation increased further in January 2010 to stand at 1.0%, according to Eurostat’s flash estimate, after 0.9% in December 2009. Inflation is expected to be around 1% in the near term and to remain moderate over the policy-relevant horizon. In line with a slow recovery in demand in the euro area and elsewhere, overall price, cost and wage developments are expected to stay subdued. In this context, it is important to emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to this outlook remain broadly balanced. They relate, in particular, to the further development of economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected, owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the annual growth rate of M3 remained negative in December 2009, standing at -0.2%. In the same period, annual growth in loans to the private sector was zero. These data continue to support our assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. Actual monetary developments are likely to be weaker than the underlying pace of monetary expansion, owing to the downward impact of the rather steep yield curve. Looking ahead, M3 and credit growth is likely to remain weak for some time to come.","The prevailing interest rate constellation continues to have a strong influence on both the level and composition of annual M3 growth. On the one hand, the low rates of remuneration on short-term bank deposits foster the allocation of funds away from M3 and into longer-term deposits and securities. On the other hand, the narrow spreads between the interest rates paid on different short-term deposits imply a low opportunity cost of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of more than 12% in December.","The zero annual growth rate of bank loans to the private sector reflects a further increase in the growth in loans to households, while the annual growth in loans to non-financial corporations moved further into negative territory. Such divergence remains in line with business cycle regularities. The ongoing contraction in the outstanding amounts of loans to non-financial corporations continues to be accounted for entirely by a strong net redemption of loans with a short maturity. For the sector as a whole, the overall contraction may be due partly to substitution with market-based financing.","Given the typical lags between turning points in economic activity and those in the demand for bank loans, growth in loans can be expected to remain weak over the months to come. In the meantime, the real cost of external financing for non-financial enterprises has declined further, while the net tightening of credit standards applied by banks has continued to diminish, as indicated by the Bank Lending Survey for the last quarter of 2009. At the same time, banks have continued to reduce the size of their overall balance sheets over the past few months. In this respect, the challenge remains for banks to adjust the size and structure of their balance sheets while ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen their capital bases further and, where necessary, take full advantage of government support measures for recapitalisation. This is important to facilitate access to finance, especially for those enterprises that do not have recourse to market-based financing.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 14 January 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that euro area economic activity continued to expand around the turn of the year. Looking ahead, the Governing Council expects the euro area economy to grow at a moderate pace in 2010. The recovery process is likely to be uneven and the outlook remains subject to uncertainty. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","We will continue our enhanced credit support to the banking system, while taking into account the ongoing improvement in financial market conditions and avoiding distortions associated with maintaining non-standard measures for too long. The Governing Council will, in early March, take decisions on the continued implementation of the gradual phasing-out of the extraordinary liquidity measures that are not needed to the same extent as in the past. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. Accordingly, we will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, many euro area countries are faced with large, sharply rising fiscal imbalances, leading to less favourable medium and long-term interest rates and lower levels of private investment. Moreover, high levels of public deficit and debt place an additional burden on monetary policy and undermine the Stability and Growth Pact as a key pillar of Economic and Monetary Union. Against this background, it is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies for the period ahead. Countries will be required to meet their commitments under the excessive deficit procedures. Consolidation of public finances should start in 2011 at the latest and will have to exceed substantially the annual adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact. A strong focus on expenditure reforms is needed.","The key challenge in order to reinforce sustainable growth and job creation is to accelerate structural reforms, as the financial crisis has negatively affected the productive capacity of our economies. In the case of product markets, policies that enhance competition and innovation are urgently needed to speed up restructuring and investment and to create new business opportunities. In labour markets, moderate wage-setting, effective incentives to work and sufficient labour market flexibility are required in order to avoid significantly higher structural unemployment over the coming years. Finally, an appropriate restructuring of the banking sector should play an important role. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks, thereby laying the foundations for sustainable growth and financial stability.","We are now at your disposal for questions.","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 Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 February 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area is on track, although it is likely to remain uneven. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","At today’s meeting we also discussed, in view of economic and financial market developments, how to proceed with the gradual phasing-out of our non-standard operational measures. In this respect, we decided to continue conducting both the main refinancing operations (MROs) and the special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary – and at least until the end of this year’s ninth maintenance period on 12 October 2010. In the case of the special-term refinancing operations, the fixed rate will be the same as the rate used in the respective MRO. The Governing Council also decided to return to variable rate tender procedures in the regular three-month longer-term refinancing operations (LTROs), starting with the operation to be allotted on 28 April 2010. Allotment amounts in these operations will be set with the aim of ensuring smooth conditions in money markets and avoiding any significant spreads between bid rates and the prevailing MRO rate. Furthermore, the Governing Council decided, in line with its decision on the 12-month LTRO of 16 December 2009, to fix the rate in the six-month LTRO to be allotted on 31 March 2010 at the average minimum bid rate of the MROs over the life of this operation.","With today’s decisions, the Eurosystem continues to provide liquidity support to the banking system of the euro area at very favourable conditions, thereby facilitating the provision of credit to the euro area. At the same time, these decisions help to avoid distortions associated with maintaining non-standard measures for longer than needed. The Governing Council will continue to implement the gradual phasing-out of the extraordinary liquidity measures. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. Accordingly, we will continue to monitor very closely all developments over the period ahead.","Let me now explain our assessment in greater detail, starting with the economic analysis. Over recent quarters, the euro area has continued to benefit from the significant macroeconomic stimulus provided and the measures adopted to restore the functioning of the banking system, as well as from the ongoing recovery in the world economy. According to Eurostat’s first release, in quarter-on-quarter terms euro area real GDP increased by 0.1% in the fourth quarter of 2009, after growing by 0.4% in the third quarter. Available indicators suggest that the economic recovery in the euro area is on track, although it is likely to remain uneven. In particular, a number of special factors are at play, including adverse weather conditions in parts of the euro area in the first quarter of 2010. Given this uneven pattern, it is more appropriate to look through the quarterly volatility and to compare growth developments on a half-yearly basis. Looking ahead, the Governing Council expects real GDP growth to remain moderate in 2010, owing to the ongoing process of balance sheet adjustment in various sectors and the expectation that the low capacity utilisation is likely to dampen investment and that consumption is being dampened by weak labour market prospects.","This assessment is also reflected in the March 2010 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 0.4% and 1.2% for 2010 and between 0.5% and 2.5% for 2011. Compared with the Eurosystem staff projections published in December 2009, the range for real GDP growth in 2010 is slightly narrower, while for 2011 the range has been revised slightly upwards, reflecting notably stronger activity worldwide","The Governing Council continues to view the risks to this outlook as broadly balanced, in an environment marked by continued uncertainty. On the upside, confidence may improve more than expected, and both the global economy and foreign trade may recover more strongly than projected. Furthermore, there may be larger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. On the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and renewed tensions in some financial market segments, as well as the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 0.9% in February 2010, according to Eurostat’s flash estimate, after 1.0% in January. Inflation is expected to be around 1% in the near term and to remain moderate over the policy-relevant horizon. In line with a slow recovery in domestic and foreign demand, overall price, cost and wage developments are expected to stay subdued. In this context, it is important to emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","This assessment is also reflected in the March 2010 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 0.8% and 1.6% for 2010 and between 0.9% and 2.1% for 2011. Compared with the Eurosystem staff projections published in December 2009, the range for 2010 has been adjusted marginally downwards, while the range for 2011 has been adjusted slightly upwards.","Risks to this outlook remain broadly balanced. They relate, in particular, to further developments in economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the annual growth rate of M3 turned slightly positive in January 2010, rising to 0.1%. This reflects mainly a base effect and confirms the assessment of continued weak monetary growth. Together with the negative annual rate of growth in loans to the private sector (equal to -0.6% in January 2010), the latest data support the assessment that the underlying pace of monetary expansion is moderate and that, in the medium term, the inflationary pressures associated with monetary developments are low. The growth of M3 and loans to the private sector is likely to remain weak also in the coming months.","At the same time, actual monetary developments are likely to be weaker than the underlying pace of monetary expansion, on account of the downward impact of the steep yield curve. This fosters the allocation of funds away from M3 and into longer-term deposits and securities. On the other hand, the narrow spreads between the interest rates paid on different M3 instruments imply a low opportunity cost of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of 11.5% in January.","The negative annual growth of loans to the private sector conceals ongoing opposite developments: positive, strengthening annual growth in loans to households on the one hand and negative, declining annual growth in loans to non-financial corporations on the other hand. Such differences are consistent with historical patterns and cyclical regularities, which suggest that loans to non-financial corporations can be expected to remain weak for some time after economic activity has picked up. At the same time, the cost of financing for enterprises has declined and the sector as a whole has continued to make extensive use of market-based financing as a substitute for bank financing.","Banks have continued to reduce the size of their overall balance sheets over the past few months, but the challenge remains for them to manage this adjustment while ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen their capital bases further and, where necessary, take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 February 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area is on track, although it is likely to remain uneven. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","As regards fiscal policies, high levels of public deficit and debt place an additional burden on monetary policy and undermine the Stability and Growth Pact as a key pillar of Economic and Monetary Union. It is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies for the period ahead. This requires determined efforts, notably on the side of countries with high deficit and debt levels. All countries will be required to meet their commitments under the excessive deficit procedures. Consolidation of public finances should start in 2011 at the latest and will have to exceed substantially the annual adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact. A strong focus on expenditure reforms is needed. The Governing Council issued, on 3 March 2010, a statement on the additional fiscal consolidation measures announced by the Greek government.","In all euro area countries, the key challenge in order to reinforce sustainable growth and job creation is to accelerate structural reforms. Policies should be adopted which open up market access and increase competition. Overall, it is essential to set the stage for long-term investment in innovation so as to create new business opportunities. Sectoral support schemes implemented to cope with the immediate effects of the crisis should now be phased out. In labour markets, moderate wage setting in several economies and sufficient labour market flexibility are required in order to avoid higher structural unemployment over the coming years. These structural reforms should be supported by an appropriate restructuring of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","We are now at your disposal for questions.","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 Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 March 2010, price developments are expected to remain moderate over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. Overall, the Governing Council expects the euro area economy to expand at a moderate pace in 2010, in an environment of uncertainty, with the growth pattern possibly being uneven owing to a number of special factors. The outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. We will continue to monitor very closely all developments over the period ahead.","Let me now explain our assessment in greater detail, starting with the economic analysis. Benefiting from the ongoing recovery in the world economy, the significant macroeconomic stimulus provided and the measures adopted to restore the functioning of the banking system, the euro area economy grew by 0.4% in the third quarter of 2009, after a period of sharp decline, while in the fourth quarter real GDP was flat, according to Eurostat’s second release. Available indicators, in particular further positive information from business surveys, suggest that the economic recovery in the euro area continued in the early months of 2010, although it may have been affected by a number of special factors, including adverse weather conditions. As a consequence, euro area real GDP growth is likely to have remained uneven around the turn of the year, making it advisable to look through the quarterly volatility and to compare growth developments on a half-yearly basis. Looking ahead, the Governing Council expects real GDP growth to continue to expand at a moderate pace in 2010, owing to the ongoing process of balance sheet adjustment in various sectors and the expectation that low capacity utilisation is likely to dampen investment and that consumption is being hampered by weak labour market prospects.","The Governing Council continues to view the risks to this outlook as broadly balanced, in an environment of uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected and confidence may improve more than expected. Furthermore, there may be greater than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. On the downside, concerns remain relating to renewed tensions in some financial market segments, a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and the intensification of protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 1.5% in March 2010, according to Eurostat’s flash estimate, after 0.9% in February. While no breakdown of overall HICP developments is available yet, this higher than expected outcome may be related in particular to the energy component as well as food prices, possibly partly as a result of weather conditions. Inflation is expected to remain moderate over the policy-relevant horizon In line with a slow recovery in domestic and foreign demand, overall price, cost and wage developments are expected to stay subdued. Inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to this outlook remain broadly balanced. They relate, in particular, to further developments in economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years.","Turning to the monetary analysis, the annual growth rate of M3 was -0.4% in February. Annual growth in loans to the private sector also remained weak, at -0.4%, despite a positive flow in the month. Overall, the latest data continue to support the assessment that the underlying pace of monetary expansion is moderate and that, in the medium term, the inflationary pressures associated with monetary developments are low. The growth of M3 and loans is likely to remain weak also in the coming months.","The continued steep yield curve fosters the allocation of funds into longer-term deposits and securities outside M3 and implies that actual M3 growth is weaker than the underlying pace of monetary expansion. At the same time, the narrow spreads between the interest rates paid on different M3 instruments imply low opportunity costs of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of 10.9% in February. However, the monthly flows in the components of M3 were generally small in February, suggesting that the strong impact of the prevailing interest rate constellation may be progressively waning.","The negative annual growth of bank loans to the private sector continues to conceal countervailing developments: positive, strengthening annual growth in loans to households on the one hand, and negative annual growth in loans to non-financial corporations on the other hand. At the same time, the flow of loans to firms in February was positive for the first time since August 2009 and halted the decline in the annual growth rate. Such positive short-term developments need to be assessed with caution, owing to the volatility in monthly data. In addition, it is a normal feature of the business cycle that loans to non-financial corporations remain weak for some time after economic activity has picked up.","The reduction in the size of banks’ overall balance sheets appears to have come to a halt in the early months of 2010. However, the challenge remains for them to manage possible further adjustments while at the same time ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen their capital bases further, and, where necessary, take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 March 2010, price developments are expected to remain moderate over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. Overall, the Governing Council expects the euro area economy to expand at a moderate pace in 2010, in an environment of uncertainty, with the growth pattern possibly being uneven owing to a number of special factors. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. We will continue to monitor very closely all developments over the period ahead.","As regards fiscal policies, it is now essential that governments reduce budget imbalances and correct excessive deficits by the agreed deadlines. In a number of euro area countries, fiscal consolidation will start this year and in all others corrective measures will need to be in place by 2011 at the latest. Fiscal consolidation will need to exceed substantially the annual structural adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact, and there is a need to fully define and implement credible fiscal adjustment strategies. This requires determined efforts, notably on the part of countries with high government deficit and debt-to-GDP ratios, not least in view of the expected rising budgetary costs associated with an ageing population. A strong focus on expenditure reforms is needed. The Governing Council welcomes the statement on Greece made by the Heads of State and Government of the euro area countries on 25 March. We fully support the intention to strengthen surveillance of economic and budgetary risks and the instruments for their prevention as well as the excessive deficit procedure. We also welcome the decision to work on a robust crisis resolution framework. Progress in these fields should aim to support the sustainability of public finances and promote the smooth functioning of EMU.","Regarding structural reforms, the agreements reached at the European Council on 25 and 26 March on the Europe 2020 strategy should help to reinforce job creation, competitiveness and sustainable growth. To this end, policies should now focus on increasing competition, while sectoral support schemes implemented during the crisis should be phased out. In labour markets, sufficient wage flexibility and a reinforcement of incentives to work are required, in order to avoid higher structural unemployment over the coming years. In the same vein, an appropriate restructuring of the banking sector remains essential. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","Regarding our collateral framework, the Governing Council has decided to keep the minimum credit threshold for marketable and non-marketable assets in the Eurosystem collateral framework at investment-grade level (i.e. BBB-/Baa3) beyond the end of 2010, except in the case of asset-backed securities (ABSs). In addition, the Governing Council has decided to apply, as of 1 January 2011, a schedule of graduated valuation haircuts to the assets rated in the BBB+ to BBB- range (or equivalent). This graduated haircut schedule will replace the uniform haircut add-on of 5% that is currently applied to these assets. The detailed haircut schedule will be based on a number of parameters which are specified in the press release to be published after today’s press conference.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Lisbon. I would like to thank Governor Constâncio for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of this meeting.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all new information since our meeting on 8 April 2010, we expect price developments to remain moderate over the policy-relevant horizon. Global inflationary pressures – driven mainly by price developments in commodity markets and in fast-growing economic regions of the world – are still being counteracted by low domestic price pressures. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. We expect the euro area economy to expand at a moderate pace in 2010, but growth patterns could be uneven in an environment of high uncertainty. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is necessary to maintain price stability in the euro area over the medium term. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area economic activity has been expanding since mid-2009, after a period of sharp decline. Notably, the economy has benefited from the ongoing recovery in the world economy, the significant macroeconomic stimulus provided and the measures adopted to restore the functioning of the banking system. Recent economic data – including positive survey indicators – support the view that the economic recovery in the euro area is continuing in 2010. While adverse weather conditions, in particular, dampened growth in the early part of the year, some strengthening appears to be taking place during the spring. Looking ahead, the Governing Council expects real GDP to expand at a moderate pace. The ongoing recovery at the global level, and its impact on the demand for euro area exports, should provide support to the euro area economy. At the same time, the financial crisis is expected to have a dampening effect on economic growth given the ongoing process of balance sheet adjustment in various sectors and the expectation of low capacity utilisation and weak labour market prospects.","The Governing Council continues to view the risks to this outlook as broadly balanced, in an environment of high uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected and confidence may improve more than expected, with the result that the recovery becomes self-sustained. On the downside, concerns remain relating to renewed tensions in some financial market segments. In addition, a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and the intensification of protectionist pressures, as well as the possibility of a disorderly correction of global imbalances, may weigh on the downside.","With regard to price developments, euro area annual HICP inflation was 1.5% in April 2010, according to Eurostat’s flash estimate, after 1.4% in March. This is somewhat higher than expected a few months ago and appears to be related, in particular, to upward pressure in energy prices. Looking ahead, global inflationary pressures may increase, driven mainly by price developments in commodity markets and in fast-growing economic regions of the world, while euro area domestic price pressures are still expected to remain contained. As a result, overall inflation rates are expected to be moderate over the policy-relevant horizon. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","In the near term, given the developments in energy prices, risks to earlier projections for HICP inflation are tilted somewhat towards the upside, while risks to price stability over the medium term are viewed as still remaining broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, we need to monitor closely the future evolution of all available price indicators.","Turning to the monetary analysis, the annual growth rate of M3 remained slightly negative, at -0.1%, in March 2010. Together with the continued negative annual growth in loans to the private sector – -0.2% in March – the latest data further support the assessment that the underlying pace of monetary expansion is moderate and that the inflationary pressures over the medium term are contained. Shorter-term developments in M3 and loans have also remained muted.","The actual growth in M3 is seen as weaker than the underlying pace of monetary expansion, as the rather steep yield curve continues to foster the allocation of funds into longer-term deposits and securities outside M3. At the same time, the still narrow spreads between the interest rates paid on different M3 instruments imply low opportunity costs of allocating funds to overnight deposits rather than other M3 instruments. This is reflected in the continued marked difference between weak annual growth in M3 and strong annual growth in M1, which was 10.9% in March. However, with the current interest rate constellation already in place for some time, the latest data suggest that the large shifts in the allocations of funds are waning.","The annual growth of bank loans to the private sector remained negative in March, but this conceals a further positive monthly flow. It also conceals ongoing opposite developments at the sectoral level, with positive, increasing annual growth in loans to households on the one side, and negative annual growth in loans to non-financial corporations on the other side. While the lagged response of loans to non-financial corporations to economic activity is a normal feature of the business cycle, the data over the past few months point to a possible discontinuation of the earlier downward trend in annual loan growth.","The latest data also confirm that the reduction in the size of banks’ overall balance sheets has not continued since the turn of the year. However, further adjustments cannot be ruled out and the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. To address this challenge, banks should turn to the market and use present funding conditions to strengthen further their capital bases.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all new information since our meeting on 8 April 2010, we expect price developments to remain moderate over the policy-relevant horizon. Global inflationary pressures – driven mainly by price developments in commodity markets and in fast-growing economic regions of the world – are still being counteracted by low domestic price pressures. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. We expect the euro area economy to expand at a moderate pace in 2010, but growth patterns could be uneven in an environment of high uncertainty. A cross- check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is necessary to maintain price stability in the euro area over the medium term. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","As regards fiscal policies, we call for decisive actions by governments to achieve a lasting and credible consolidation of public finances. The latest information shows that the correction of the large fiscal imbalances will, in general, require a stepping-up of current efforts. Fiscal consolidation will need to exceed substantially the annual structural adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact. The longer the fiscal correction is postponed, the greater the adjustment needs become and the higher the risk of reputational and confidence losses. Instead, the swift implementation of frontloaded and comprehensive consolidation plans, focusing on the expenditure side and combined with structural reforms, will strengthen public confidence in the capacity of governments to regain sustainability of public finances, reduce risk premia in interest rates and thus support sustainable growth over the medium term. In this context, the Governing Council welcomes the economic and financial adjustment programme which was approved by the Greek government following the successful conclusion of the negotiations with the European Commission, in liaison with the ECB, and the International Monetary Fund, with a view to safeguarding financial stability in the euro area as a whole.","For all euro area countries, structural reforms leading to higher growth and employment are crucial to support a sustainable recovery. In view of the recent rise in unemployment, tax and benefit systems that set effective incentives to work, improved training schemes and sufficient flexibility in labour contracts are required in order to avoid an increase in structural unemployment. At the same time, existing competitiveness problems, as well as domestic and external imbalances, need to be urgently addressed by the countries concerned. To that end, wage-bargaining institutions that allow wages to adjust appropriately to losses in competitiveness and the unemployment situation are indispensable. Likewise, measures that increase price flexibility and non-price competitiveness are essential. Finally, an appropriate restructuring of the banking sector should play an important role. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","We are now at your disposal for questions.","Ladies and gentlemen, Mr Constâncio, the new Vice-President of the ECB, and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the new information which has become available since our meeting on 6 May 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Global inflationary pressures may persist, while domestic price pressures are expected to remain low. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010, but quarterly growth rates are likely to be rather uneven. Looking ahead, we expect the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and of unusually high uncertainty. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of strong financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term, and the monetary policy stance and the overall provision of liquidity will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. According to Eurostat’s first estimate, euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. While adverse weather conditions, in particular, dampened growth in the early part of the year, the latest economic indicators suggest that a rebound took place during the spring. Looking ahead, the Governing Council expects real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. The ongoing recovery at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should provide support to the euro area economy. However, the recovery of activity is expected to be dampened by the process of balance sheet adjustment in various sectors and weak labour market prospects.","This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 0.7% and 1.3% in 2010 and between 0.2% and 2.2% in 2011. Compared with the March 2010 ECB staff macroeconomic projections, the range for real GDP growth this year has been revised slightly upwards, owing to the positive impact of stronger activity worldwide in the short run, while the range has been revised somewhat downwards for 2011, reflecting mainly domestic demand prospects. The June 2010 Eurosystem staff projections are broadly in line with forecasts by international organisations.","In the Governing Council’s assessment, the risks to the economic outlook are broadly balanced, in an environment of unusually high uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected, thereby further supporting euro area exports. On the downside, concerns remain relating to renewed tensions in some financial market segments and related confidence effects. In addition, a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances, may weigh on the downside.","With regard to price developments, euro area annual HICP inflation was 1.6% in May 2010, according to Eurostat’s flash estimate, after 1.5% in April. The rise in inflation over recent months mostly reflects higher energy prices. During the second half of this year some further slight increases in HICP inflation cannot be excluded. Looking further ahead, inflation rates should overall remain moderate. Upward pressures on commodity prices may persist, while euro area domestic price pressures are expected to remain low. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.4% and 1.6% for 2010 and between 1.0% and 2.2% for 2011. Compared with the ECB staff projections of March 2010, the ranges have been adjusted somewhat upwards, mainly reflecting higher euro prices for commodities. Available forecasts from international organisations provide a broadly similar picture.","Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators.","Turning to the monetary analysis, the annual growth rate of M3 was unchanged at -0.1% in April 2010. The annual growth rate of loans to the private sector increased somewhat further and turned positive, but remained weak at 0.1%. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and loans have remained volatile and, given the renewed tensions in some financial market segments, volatility in M3 and its components may well continue.","The actual growth in M3 continues to understate the underlying pace of monetary expansion, but the downward impact of the rather steep yield curve and the associated allocation of funds to longer-term deposits and securities outside M3 appear to be gradually waning. The same holds for the shifts within M3 that have been observed as a response to the narrow spreads between the interest rates paid on different M3 instruments. At 10.7%, annual M1 growth is still very strong.","The still weak annual growth rate of bank loans to the private sector conceals the fact that monthly flows have now been positive for a number of months. At the same time, these aggregate developments continue to reflect mainly an ongoing strengthening in the annual growth of loans to households, while the annual growth of loans to non-financial corporations has remained negative. A lagged response of loans to non-financial corporations to economic activity is a normal feature of the business cycle.","The latest data confirm that the reduction in the size of banks’ overall balance sheets has not continued since the turn of the year. However, further adjustments cannot be ruled out and the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. To address this challenge, banks should turn to the market to strengthen further their capital bases and, where necessary, take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the new information which has become available since our meeting on 6 May 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Global inflationary pressures may persist, while domestic price pressures are expected to remain low. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010, but quarterly growth rates are likely to be rather uneven. Looking ahead, we expect the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and of unusually high uncertainty. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","As regards fiscal policies, the Governing Council welcomes the recent decision by euro area countries to formally establish a European Financial Stability Facility. This needs to be accompanied by decisive action at the level of governments. It is essential that all countries stick to their commitments to correct high budget deficits and government debt and reduce fiscal vulnerability. To this end, the concrete adjustment measures needed to achieve the budgetary targets should be fully specified. All countries must ensure that confidence in the sustainability of public finances is guaranteed. The Governing Council welcomes the fact that a number of euro area governments with the highest deficits and strongly increasing debt levels have adopted additional fiscal consolidation measures and set out more ambitious fiscal targets. In this context, we took note of the spring 2010 orientations for fiscal policies in euro area countries agreed by the euro area finance ministers on 7 June, and welcome the commitment to take additional measures, where needed, in order to ensure the achievement of the budgetary targets for 2010 and beyond. It is indeed key that the new budgetary targets be achieved. The Governing Council fully agrees with the ministers on the priority of halting and reversing the increase in the debt ratio and welcomes the commitment to take immediate action to that effect.","For all euro area countries, structural reforms leading to higher growth and employment are crucial to support a sustainable recovery. Existing competitiveness problems, as well as domestic and external imbalances, need to be urgently addressed by the countries concerned. To that end, wage-bargaining should allow wages to adjust appropriately to the competitiveness and unemployment situation. Likewise, measures that increase price flexibility and non-price competitiveness are essential. Finally, an appropriate restructuring of the banking sector should play an important role. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth, job creation and financial stability.","We are now at your disposal for questions.","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, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council views the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Taking into account all the new information which has become available since our meeting on 10 June 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010. Looking ahead, we expect the euro area economy to grow at a moderate and still uneven pace, in an environment of high uncertainty. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of acute financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term. The monetary policy stance and the overall provision of liquidity will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010, according to Eurostat’s second estimate. The latest economic data and survey-based indicators suggest that a strengthening in economic activity took place during the spring. The Governing Council expects real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. The ongoing recovery at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should provide support to the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects.","In the Governing Council’s assessment, the risks to the economic outlook are broadly balanced, in an environment of high uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected, thereby further supporting euro area exports. On the downside, concerns remain relating to renewed tensions in financial markets, with possible further adverse effects on financing conditions and confidence. In addition, a stronger or more protracted than previously expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances, may weigh on the downside.","With regard to price developments, euro area annual HICP inflation was 1.4% in June, according to Eurostat’s flash estimate, after 1.6% in May. In the next few months annual HICP inflation rates are expected to display some further volatility, with a tendency towards somewhat higher rates later in the year. Looking ahead, in 2011 inflation rates should overall remain moderate, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators.","Turning to the monetary analysis, the annual growth rate of M3 was unchanged at -0.2% in May 2010. The annual growth rate of loans to the private sector increased slightly further but, at 0.2%, remained weak. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and some of its components and counterparts have remained volatile and, given the continued tensions in some financial market segments, this volatility may well persist.","The previously strong impact of the interest rate constellation on monetary dynamics appears to be gradually waning. This implies that actual M3 growth is less affected than before by the downward impact of the steep yield curve and the associated allocation of funds into longer-term deposits and securities outside M3. Moreover, the impact that the narrow spreads between the interest rates paid on different M3 instruments have on shifts within M3 towards M1 should be diminishing. However, at 10.3%, annual M1 growth is still very strong.","The still weak annual growth rate of bank loans to the private sector continues to conceal countervailing developments, with positive growth in loans to households and negative growth in loans to non-financial corporations. While the monthly flow in bank loans to non-financial corporations was positive in May, in the light of the volatility observed in recent months it is too early to judge whether this signals a turning point. A lagged response of loans to non-financial corporations to developments in economic activity is a normal feature of the business cycle.","The data up to May confirm that the size of banks’ overall balance sheets has increased since the turn of the year. The challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation. In this respect, we welcome the decision announced by the European Council to publish, with the consent of the banks involved, the individual results of the stress test exercise for banks in the European Union carried out by the Committee of European Banking Supervisors (CEBS) in cooperation with the ECB. Appropriate action will have to be taken where needed. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth, job creation and financial stability.","To sum up, the current key ECB interest rates remain appropriate. Taking into account all the new information which has become available since our meeting on 10 June 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010. Looking ahead, we expect the euro area economy to grow at a moderate and still uneven pace, in an environment of high uncertainty. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","As regards fiscal policies, the focus clearly needs to be on ensuring the sustainability of public finances. In the current environment, all euro area countries must, as a minimum, comply with their fiscal consolidation plans as foreseen under the respective excessive deficit procedures. More ambitious targets, as already adopted by a number of countries, may become necessary where current plans fall short of meeting the main objective of halting and reversing the increase in the government debt ratio. Moreover, all countries must specify credible adjustment measures that are sufficient to attain their budgetary targets for 2010, 2011 and beyond, and must live up to their commitment to take additional measures, where needed, over the coming years.","For the proper functioning of the euro area, and to strengthen the prospects for higher sustainable growth, the pursuit of far-reaching structural reforms is essential. This will also support the process of fiscal consolidation. Major reforms are particularly needed in those countries that have experienced competitiveness losses in the past or that are suffering from high fiscal and external deficits. Measures should ensure a wage bargaining process that allows wages to adjust flexibly to the unemployment situation and losses in competitiveness. Reforms to strengthen productivity growth would further support the adjustment process of these economies.","Let me finally refer to the proposals submitted by the Governing Council to the Task Force on Economic Governance established by the European Council under the chairmanship of President Van Rompuy. In the view of the Governing Council, a quantum leap in terms of progress towards strengthening the institutional foundations of EMU is needed. It is essential that governance and enforcement structures in the economic policy framework of the euro area be strengthened. Reinforcing surveillance of national budgetary policies and ensuring rigorous compliance with the fiscal rules will be key. Furthermore, it is extremely important that close oversight of relative competitiveness developments be implemented and that a surveillance mechanism be established to address imbalances in the euro area countries. At the same time, it is important to establish an appropriate euro area crisis management framework that minimises moral hazard.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council views the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Considering all the new information which has become available since our meeting on 8 July 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account a number of temporary factors, we continue to expect the euro area economy to grow at a moderate and still uneven pace, in an environment of uncertainty. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of acute financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term. The monetary policy stance and the overall provision of liquidity will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010 and the available data for the third quarter are better than expected. Looking further ahead, and taking into account temporary effects, the Governing Council continues to expect real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. Ongoing growth at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should continue to support the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects.","In the Governing Council’s assessment, the risks to the economic outlook are broadly balanced in an environment of uncertainty. On the upside, the global economy and foreign trade may recover more strongly than is now projected, thereby further supporting euro area exports. On the downside, concerns remain relating to the emergence of renewed tensions in financial markets, renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation increased to 1.7% in July, according to Eurostat’s flash estimate, from 1.4% in June, most likely owing to upward base effects in the energy and food components. In the next few months annual HICP inflation rates are expected to display some further volatility around the current level. Looking further ahead, in 2011 inflation rates should remain moderate overall, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators.","Turning to the monetary analysis, the annual growth rate of M3 turned positive and was 0.2% in June 2010, after -0.1% in May. The annual growth rate of loans to the private sector increased slightly further but, at 0.3%, remained weak. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and some of its components and counterparts have remained volatile, and this volatility may well persist.","The previously strong impact of the interest rate constellation on monetary dynamics, while still affecting the pace of underlying money growth, appears to be gradually waning. This implies a gradual reduction in the effect on actual M3 growth arising from the downward impact of the steep yield curve and the associated allocation of funds into longer-term deposits and securities outside M3. At the same time, the annual growth rate of M1 has continued to moderate, although it remained strong at 9.2% in June 2010. In part, this reflects somewhat higher opportunity costs of holding overnight deposits relative to other short-term deposits.","The still weak annual growth rate of bank loans to the private sector continues to conceal countervailing developments, with increasingly positive growth in loans to households and stabilised negative annual growth in loans to non-financial corporations. A lagged response of loans to non-financial corporations to developments in economic activity is a normal feature of the business cycle.","The data up to June indicate that, after expanding for a few months earlier in the year, the size of banks’ overall balance sheets has not increased further. The challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation.","In this respect, we welcome the EU-wide stress-testing exercise, which was prepared and conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the ECB. This stress-testing exercise was comprehensive and rigorous, and the results confirm the resilience of EU and euro area banking systems as a whole to severe economic and financial shocks. The stress test has also significantly enhanced transparency regarding the current financial conditions and risk exposures of the 91 institutions that participated in the exercise. Hence, the exercise represents an important step forward in restoring market confidence.","We also welcome the commitment made by national authorities with regard to the provision of support facilities for banks where private sector means are insufficient. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth, job creation and financial stability.","To sum up, the current key ECB interest rates remain appropriate. Considering all the new information which has become available since our meeting on 8 July 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account a number of temporary factors, we continue to expect the euro area economy to grow at a moderate and still uneven pace, in an environment of uncertainty. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Turning to fiscal policies, it is essential that budget plans for 2011 and beyond reflect a strong commitment to returning to sound public finances. Given the exceptional fiscal deterioration over the past two years, there is an urgent need to implement credible medium-term consolidation strategies aimed at restoring fiscal sustainability and creating room for budgetary manoeuvre. As a minimum, countries’ budgetary targets must comply with the fiscal consolidation requirements foreseen under the respective excessive deficit procedures. More ambitious targets, as already adopted by a number of euro area countries, may become necessary where current plans fall short of meeting the main objective of halting and reversing the increase in the government debt ratio. Moreover, all countries must specify credible fiscal adjustment measures, focusing on the expenditure side, while being prepared to implement additional measures, where needed, over the coming years.","In order to support the process of fiscal consolidation, to underpin the proper functioning of the euro area and to strengthen the prospects for higher sustainable growth, the pursuit of far-reaching structural reforms is essential. Major reforms are particularly needed in those countries that have experienced competitiveness losses in the past or that are suffering from high fiscal and external deficits. Measures should ensure a wage bargaining process that allows wages to adjust flexibly to the unemployment situation and losses in competitiveness. Reforms to strengthen productivity growth would further support the adjustment process of these economies.","We are now at your disposal for questions.","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, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council continues to view the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Considering all the new information and analyses which have become available since our meeting on 5 August 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","The Governing Council has today also decided to continue to conduct its main refinancing operations (MROs) and its special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of this year’s twelfth maintenance period on 18 January 2011. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, it has decided to conduct the 3-month longer-term refinancing operations (LTROs), to be carried out in October, November and December 2010, as fixed rate tender procedures with full allotment. The rates in these 3-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. The Governing Council has also decided to carry out three additional fine-tuning operations on 30 September, 11 November and 23 December when 6-month and 12-month refinancing operations mature.","Overall, the current monetary policy stance remains accommodative. Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of acute financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to maintaining price stability over the medium to longer term. The monetary policy stance, the overall provision of liquidity and the allotment modes will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP grew strongly on a quarterly basis, increasing by 1.0% in the second quarter of 2010, supported by ongoing growth at the global level but also in part reflecting temporary domestic factors. Recent data and survey evidence generally confirm the expectation of a moderation in the second half of this year, both at the global level and in the euro area. Nevertheless, while uncertainty still prevails, they continue to indicate a positive underlying momentum of the recovery in the euro area. Ongoing growth at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should continue to support the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects.","This assessment is also reflected in the September 2010 ECB staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.4% and 1.8% in 2010 and between 0.5% and 2.3% in 2011. Compared with the June 2010 Eurosystem staff macroeconomic projections, the range for real GDP growth this year has been revised upwards, owing to the stronger than expected rebound in economic growth in the second quarter as well as better than expected developments over the summer months. For 2011 the range has also been revised upwards, reflecting mainly carry-over effects from the projected stronger growth towards the end of 2010.","In the Governing Council’s assessment, the risks to this improved economic outlook are slightly tilted to the downside, with uncertainty still prevailing. On the one hand, global trade may continue to perform more strongly than expected, thereby supporting euro area exports. On the other hand, concerns remain relating to the emergence of renewed tensions in financial markets and to some uncertainty about growth prospects in other advanced economies and at the global level. In addition, downside risks relate to renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 1.6% in August, according to Eurostat’s flash estimate, compared with 1.7% in July. The small decline in inflation is likely to reflect base effects in the energy component. Later in the year annual HICP inflation rates are expected to increase slightly while displaying some volatility. Looking further ahead, in 2011 inflation rates should remain moderate overall, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","This assessment is also reflected in the September 2010 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.5% and 1.7% for 2010 and between 1.2% and 2.2% for 2011. Compared with the Eurosystem staff macroeconomic projections of June 2010, the ranges have been revised slightly upwards, largely on account of higher commodity prices.","Risks to the outlook for price developments are slightly tilted to the upside. They relate, in particular, to the evolution of energy and non-oil commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained.","Turning to the monetary analysis, the annual growth rate of M3 stood at 0.2% in July 2010, unchanged from June. The annual growth rate of loans to the private sector, which has been gradually increasing, rose further to 0.9%, but still remains relatively weak. The subdued developments in money and loan growth continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.","The downward impact of the steep yield curve on monetary growth, which is reflected in the allocation of funds into longer-term deposits and securities outside M3, is gradually waning. Moreover, the impact of the narrow spreads between different short-term interest rates on the growth of the components of M3 is continuing to diminish. As a result, the annual growth rate of M1 has continued to moderate from high levels, and stood at 8.1% in July 2010, while the annual growth rate of other short-term deposits has become less negative.","The still weak annual growth rate of bank loans to the non-financial private sector continues to conceal positive growth in loans to households and diminishing negative annual growth in loans to non-financial corporations. These developments are consistent with a normal, lagged response of loan developments to economic activity over the business cycle.","Given the subdued developments in banks’ overall balance sheets, the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. Considering all the new information and analyses which have become available since our meeting on 5 August 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Turning to fiscal policies, current developments at the euro area aggregate level appear to be broadly in line with previous expectations. At the country level, any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected macroeconomic environment, should be exploited to make faster progress with fiscal consolidation. At the same time, in countries where there is still a need to take additional specific measures to achieve consolidation targets, such measures should be adopted swiftly to ensure that consolidation commitments are fulfilled. This is a prerequisite for maintaining confidence in the credibility of governments’ fiscal targets. Positive effects on confidence can compensate for the reduction in demand stemming from fiscal consolidation, when fiscal adjustment strategies are perceived as credible, ambitious and focused on the expenditure side. The conditions for such positive effects are particularly favourable in the current environment of macroeconomic uncertainty.","In order to support the process of fiscal consolidation, to underpin the proper functioning of the euro area and to strengthen the prospects for higher sustainable growth, the pursuit of far-reaching structural reforms is essential. Major reforms are particularly needed in those countries that have experienced competitiveness losses in the past or that are suffering from high fiscal and external deficits. Measures should ensure a wage bargaining process that allows wages to adjust flexibly and appropriately to the unemployment situation and losses in competitiveness. Reforms to strengthen productivity growth would further support the adjustment process of these economies.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council continues to view the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Considering all the new information and analyses which have become available since our meeting on 2 September 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with our expectation that the recovery should proceed at a moderate pace in the second half of this year, with the underlying momentum remaining positive. At the same time, uncertainty is still prevailing. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are fully consistent with our mandate and, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP grew strongly on a quarterly basis, increasing by 1.0% in the second quarter of 2010, supported mainly by domestic demand, but partly reflecting temporary factors. Recent statistical releases and survey evidence generally confirm our expectation of a moderation in the second half of this year in the euro area and elsewhere. Nevertheless, the positive underlying momentum of the recovery in the euro area remains in place. The global recovery is expected to go on, and this should imply a continued positive impact on the demand for euro area exports. At the same time, private sector domestic demand should gradually strengthen further, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook are slightly tilted to the downside, with uncertainty still prevailing. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. On the other hand, concerns remain relating to the emergence of renewed tensions in financial markets. In addition, downside risks relate to renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 1.8% in September, according to Eurostat’s flash estimate, compared with 1.6% in August. The increase in inflation was anticipated and reflects base effects mainly stemming from the energy component. In the next few months HICP inflation rates will hover around current levels before moderating again in the course of next year. Overall, in 2011 inflation rates should remain moderate, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for price developments are slightly tilted to the upside. They relate, in particular, to the evolution of energy and non-oil commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained.","Turning to the monetary analysis, the annual growth rate of M3 rose to 1.1% in August 2010, from 0.2% in July. The annual growth rate of loans to the private sector also rose, standing at 1.2%, after 0.8% in the previous month. In both cases, the rise reflects relatively strong monthly flows. The still low growth rates continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.","The yield curve has remained fairly steep, but the downward impact of this on monetary growth is gradually waning. Moreover, while spreads between different short-term interest rates are still generally narrow, they have been widening somewhat between rates paid on short-term time deposits and overnight deposits. As a result, the annual growth rate of M1 has continued to moderate from high levels, and stood at 7.7% in August 2010, while the annual growth rate of other short-term deposits has become less negative.","The rise in the annual growth rate of bank loans to the non-financial private sector reflects both a further slight increase in the positive growth of loans to households and a gradually less negative annual growth rate in loans to non-financial corporations. The latest developments are consistent with the lagged response of loan developments to economic activity over the business cycle that was also observed in past cycles.","Banks have gradually increased the overall size of their balance sheets recently, but the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up further. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. We therefore decided to leave them unchanged. Considering all the new information and analyses which have become available since our meeting on 2 September 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with our expectation that the recovery should proceed at a moderate pace in the second half of this year, with the underlying momentum remaining positive. At the same time, uncertainty is still prevailing. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Turning to fiscal policies, we take note of the recent announcements made in some euro area countries with regard to measures to tackle the existing fiscal imbalances. Indeed, a number of countries have to meet major challenges, and immediate, ambitious and convincing corrective action is required. Credible multi-year consolidation plans are needed and will strengthen public confidence in the capacity of governments to return to sustainable public finances, reduce risk premia in interest rates and thus support sustainable growth over the medium term. For all euro area countries, the 2011 budgets need to reflect the commitment to ambitious fiscal consolidation in line with countries’ pledges under the excessive deficit procedures. Any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected environment, should be exploited to make faster progress with fiscal consolidation.","The urgent implementation of far-reaching structural reforms is essential to enhance the prospects for higher sustainable growth. Major reforms are particularly needed in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. The removal of labour market rigidities and the strengthening of productivity growth would further support the adjustment process of these economies. Increasing product market competition, particularly in the services sectors, would also facilitate industrial restructuring and encourage innovation and the adoption of new technologies.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council continues to view the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 7 October 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with our assessment that the underlying momentum of the recovery remains positive. At the same time, uncertainty is prevailing. Our monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are fully consistent with our mandate and, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Recent data releases and survey evidence generally confirm our view that the positive underlying momentum of the economic recovery in the euro area remains in place. In line with previous expectations, this implies ongoing real GDP growth in the second half of this year. The global recovery is expected to proceed, and this should imply a continued positive impact on the demand for euro area exports. At the same time, private sector domestic demand should contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty prevailing. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. On the other hand, some concerns remain relating to the re-emergence of tensions in financial markets. In addition, downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures, and the possibility of a disorderly correction of global imbalances.","With regard to price developments, as anticipated, euro area annual HICP inflation rose to 1.9% in October, according to Eurostat’s flash estimate, compared with 1.8% in September. In the next few months HICP inflation rates will hover around current levels before moderating again in the course of next year. Overall, in 2011 inflation rates should remain moderate. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the outlook for price developments are slightly tilted to the upside. They relate, in particular, to the evolution of energy and non-oil commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are still expected to be contained.","Turning to the monetary analysis, the annual growth rate of M3 was broadly unchanged, at 1.0% in September 2010, after 1.1% in August. The annual growth rate of loans to the private sector, at 1.2%, remained unchanged from August. Looking beyond developments in individual months, broad money and loan growth remains low and continues to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.","The annual growth rate of M1 has continued to moderate, standing at 5.9% in September 2010, while the annual growth rate of other short-term deposits has become less negative. This reflects the widening spread between interest rates paid on short-term time deposits and those paid on overnight deposits.","The annual growth rate of bank loans to the private sector is increasingly supported by the flow of loans to non-financial corporations. The annual growth rate of these loans is still slightly negative, but developments in recent months suggest that a turning point was reached earlier in 2010. This would be consistent with the lagged response of loan developments to economic activity over the business cycle that was also observed in past cycles. The annual growth rate of loans to households stood at 2.8% in September and thereby remained at levels seen in previous months.","Banks have continued to gradually increase the weight of credit to the private sector in the overall size of their balance sheets, but the challenge remains to expand the availability of such credit when demand picks up further. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. We therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 7 October 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with our assessment that the underlying momentum of the recovery remains positive. At the same time, uncertainty is prevailing. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.","Turning to fiscal policies, there is a clear need to strengthen public confidence in the capacity of governments to return to sustainable public finances, reduce risk premia in interest rates and thus support sustainable growth over the medium term. To this end, it is essential that countries pursue credible multi-year consolidation plans and fully implement the planned consolidation measures. In their 2011 budgets, they need to specify credible fiscal adjustment measures, focusing on the expenditure side. Any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected environment, should be exploited to make faster progress with fiscal consolidation.","The urgent implementation of far-reaching structural reforms is essential to enhance the prospects for higher sustainable growth. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. The removal of labour market rigidities and the strengthening of productivity growth would further support the adjustment process of these economies. Increasing product market competition, particularly in the services sectors, would also facilitate the restructuring of the economy and encourage innovation and the adoption of new technologies.","At their meeting on 28-29 October 2010 the EU Heads of State and Government agreed on the  reform of the European Union’s economic governance. The proposals put forward by President Van Rompuy represent a strengthening of the existing framework for fiscal and macroeconomic surveillance in the European Union. However, the Governing Council considers that they do not go as far as the quantum leap in the economic governance of Monetary Union that it has been calling for.","In particular, the Governing Council is concerned that there would be insufficient automaticity in the implementation of fiscal surveillance, that there is no specification of the rule to reduce the government debt ratio, and that financial sanctions have not been explicitly retained under the macroeconomic surveillance procedure.","With regard to the macroeconomic surveillance procedure in particular, the new system of mutual surveillance would need to concentrate firmly on euro area countries experiencing sustained losses of competitiveness and large current account deficits. It should be determined by transparent and effective trigger mechanisms. It would be essential that the assessments of macroeconomic imbalances and recommendations for corrective action be given broad publicity at all stages of the surveillance process.","The public and the markets can be confident that the Governing Council remains firmly committed to delivering on its mandate of maintaining price stability over the medium term.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates are appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 4 November 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with a positive underlying momentum of the recovery, while uncertainty is elevated. Our monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations are firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is of the essence.","The Governing Council today also decided to continue conducting its main refinancing operations (MROs) and the special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the third maintenance period of 2011 on 12 April 2011.","Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted on 26 January, 23 February and 30 March 2011 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP grew by 0.4% on a quarterly basis in the third quarter of 2010, following exceptional growth of 1.0% in the second quarter. Recent statistical releases and survey-based evidence generally confirm that the positive underlying momentum of the economic recovery in the euro area remains in place. In line with previous expectations, this implies ongoing real GDP growth in the fourth quarter of this year. Euro area exports should further benefit from a continued recovery in the world economy. At the same time, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.","This assessment is also reflected in the December 2010 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.6% and 1.8% in 2010, between 0.7% and 2.1%% in 2011 and between 0.6% and 2.8% in 2012. Compared with the September 2010 ECB staff macroeconomic projections, the range for 2010 has narrowed somewhat and shifted towards the upper end of September’s range, while the range for 2011 is slightly narrower. The December 2010 Eurosystem staff projections are broadly in line with forecasts by international organisations.","In the Governing Council’s assessment, the risks to this economic outlook are tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. At the same time, it is to be noted that the level of business confidence in the euro area remains relatively high. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 1.9% in November, according to Eurostat’s flash estimate, unchanged from October. In the next few months HICP inflation rates will hover around current levels before moderating again in the course of next year. Overall, in the period ahead inflation rates should remain moderate. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","This assessment is also reflected in the December 2010 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.5% and 1.7% for 2010, between 1.3% and 2.3% for 2011 and between 0.7% and 2.3% for 2012. Compared with the ECB staff projections published in September, the range for 2010 is unchanged, while the range for 2011 is marginally higher. Available forecasts from international organisations provide a broadly similar picture.","Risks to the outlook for price developments are broadly balanced. Upside risks relate, in particular, to developments in energy and non-energy commodity prices. Furthermore, increases in indirect taxes and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are still expected to be contained.","Turning to the monetary analysis, the annual growth rate of M3 remained broadly unchanged at 1.0% in October, after 1.1% in September 2010. The annual growth rate of loans to the private sector increased to 1.4% in October from 1.2% in the previous month. Broad money and loan growth hence remained low, supporting the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.","The steepness of the yield curve has continued to lessen somewhat, implying a gradual softening of the dampening impact on M3 that was associated with shifts of funds from monetary assets to longer-term financial assets outside M3. The interest rate constellation also includes a further widening in the spread between interest rates paid on short-term time deposits and those paid on overnight deposits. As a result, annual M1 growth has continued to moderate, standing at 4.9% in October 2010, after 6.2% in September, while the annual growth rate of other short-term deposits continues to become less negative.","The annual growth rate of bank loans to the private sector continues to conceal positive growth in loans to households, with 2.9% in October after 2.8% in September, and still negative growth in loans to non-financial corporations, which stood at -0.6% in October, unchanged from September. When correcting for the impact of derecognition of loans from bank balance sheets, the growth in loans to non-financial corporations continued to strengthen, further confirming that a turning point was reached earlier in 2010.","Over the past few months, banks have generally stabilised the size of their balance sheets while expanding the provision of credit to the private sector. However, the challenge remains to expand the availability of such credit when demand picks up further. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates remain appropriate. We therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 4 November 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with a positive underlying momentum of the recovery, while uncertainty is elevated. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations are firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is of the essence.","Turning to fiscal policies, while budgetary developments for some euro area countries are more favourable than expected, concerns about unsustainable fiscal positions and their vulnerability to adverse market reactions remain very high for others and have had repercussions throughout the euro area. In this environment, there is a clear need for the responsible authorities to strengthen confidence in sound public finances, thereby reducing risk premia in interest rates and supporting sustainable growth over the medium term. At the same time, all euro area countries should pursue ambitious and credible multi-year consolidation strategies and implement fully the planned corrective measures, focusing on the expenditure side. In their 2011 budgets, countries need to specify the necessary fiscal adjustment measures in detail, while standing ready to correct any slippages from the fiscal objectives announced.","Substantial and far-reaching structural reforms should be rapidly implemented to enhance the prospects for higher sustainable growth. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. The removal of labour market rigidities would further support the adjustment process of these economies. Increasing product market competition, particularly in the services sectors, would also facilitate the restructuring of the economy and encourage innovation and the adoption of new technologies. Such measures are crucial for enhancing productivity growth, one of the main drivers of long-term growth. All these structural reforms should be supported by an appropriate restructuring of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","Finally, let me recall that the Governing Council welcomes the economic and financial adjustment programme which was agreed by the Irish government following the successful conclusion of the negotiations with the European Commission, in liaison with the ECB, and the International Monetary Fund. The programme contains the necessary elements to bring about a sustainable stabilisation of the Irish economy. It addresses in a decisive manner the economic and financial causes underlying current market concerns and will thereby contribute to restoring confidence and safeguarding financial stability in the euro area. The Governing Council welcomes the commitment of the Irish public authorities to take any further measures that may become appropriate to achieve the objectives of the programme.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me wish you all a very Happy New Year. I would also like to take this opportunity to welcome Estonia as the seventeenth country to adopt the euro as its currency. Accordingly, Mr Lipstok, the Governor of Eesti Pank, became a member of the Governing Council on 1 January 2011. Following the adoption of the euro by Estonia there are now 331 million citizens using the euro as their currency. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated. Our monetary analysis indicates that inflationary pressures over the medium term should remain contained. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is of the essence.","Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of 2010, recent statistical releases and survey-based evidence confirm that the positive underlying momentum of economic activity in the euro area remained in place towards the end of 2010. Looking ahead at 2011, euro area exports should benefit from a continued recovery in the world economy. At the same time, and particularly taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.2% in December, according to Eurostat’s flash estimate, after 1.9% in November. This was somewhat higher than expected and largely reflects higher energy prices. Looking ahead to the next few months, inflation rates could temporarily increase further. They are likely to stay slightly above 2%, largely owing to commodity price developments, before moderating again towards the end of the year. Overall, we see evidence of short-term upward pressure on overall inflation, stemming largely from global commodity prices. While this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon, very close monitoring of price developments is warranted. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments are still broadly balanced but could move to the upside. Upside risks relate, in particular, to developments in energy and non-energy commodity prices. Furthermore, increases in indirect taxes and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years, and price pressures in the production chain could rise further. On the downside, risks relate mainly to the impact on inflation of potentially lower growth, given the prevailing uncertainties.","Turning to the monetary analysis, the annual growth rate of M3 increased to 1.9% in November 2010, after 0.9% in October. This strong increase is in part related to base effects and volatile factors. The annual growth rate of loans to the private sector also increased, rising to 2.0% in November from 1.5% in October. Looking beyond the special factors that operated in November, broad money and loan growth is still low, corroborating the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term should remain contained.","The interest rate constellation continued to exert a significant impact on the growth of monetary aggregates. Looking at M3 components, the interest rates paid on short-term time deposits remained higher than those paid on overnight deposits. As a result, annual M1 growth continued to moderate, standing at 4.6% in November 2010, while the annual growth rate of other short-term deposits continued to become less negative. At the same time, the yield curve has lately become steeper again, implying that the attractiveness of short-term deposits included in M3 has declined somewhat compared with more highly remunerated longer-term assets outside M3.","The annual growth rate of bank loans to the private sector continued to increase in November, partly owing to special factors. At the sectoral level, this strengthening increasingly reflects the upward movement in the growth of loans to non-financial corporations, which stood at -0.1% in November, after -0.5% in October, thereby further confirming that a turning point was reached in the course of 2010. The growth of loans to households remained stronger, at 2.7% in November after 2.9% in October, but the latest data point to some signs of a levelling-off.","Over the past few months banks have expanded the provision of credit to the private sector in an environment in which the overall size of their balance sheets has remained broadly stable. The challenge remains to expand the availability of such credit when demand picks up further. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates still remain appropriate. We therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated. A cross-check of the outcome of our economic analysis with that of the monetary analysis indicates that inflationary pressures over the medium term should remain contained. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is of the essence.","Turning to fiscal policies, in view of the ongoing vulnerability to adverse market reactions, countries need to do their utmost to meet their deficit targets and put government debt-to-GDP ratios firmly on a downward trajectory. In this regard, the Governing Council takes note of the recently announced measures in some euro area countries to reduce their very large fiscal imbalances. Where necessary, additional corrective measures – preferably on the expenditure side – need to be swiftly defined and implemented. At the same time, all euro area countries should pursue ambitious and credible multi-year consolidation strategies. This will help to strengthen confidence in the sustainability of public finances, reduce risk premia in interest rates and improve the conditions for sound and sustainable growth. Any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected economic environment, should be exploited to make faster progress with fiscal consolidation.","Substantial and far-reaching structural reforms, complementing fiscal adjustment, should be rapidly implemented to enhance the prospects for higher sustainable growth. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. The removal of labour market rigidities would further support the adjustment process of these economies. Increasing product market competition, particularly in the services sectors, would also facilitate the restructuring of the economy and encourage innovation. Such measures are crucial for enhancing productivity growth, which is one of the main drivers of long-term growth. All these structural reforms should be supported by the necessary improvements in the structure of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 13 January 2011, we continue to see evidence of short-term upward pressure on overall inflation, mainly owing to energy and commodity prices. This has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Our monetary analysis indicates that inflationary pressures over the medium to long term should remain contained. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The continued firm anchoring of inflation expectations is of the essence.","Overall, we expect price stability to be maintained over the medium term, and the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of 2010, recent statistical releases and survey-based evidence for the fourth quarter and the beginning of the year continue to confirm the positive underlying momentum of economic activity in the euro area. Looking ahead, euro area exports should benefit from the ongoing recovery in the world economy. At the same time, taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, while uncertainty remains elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.4% in January 2011, according to Eurostat’s flash estimate, after 2.2% in December. This further increase was broadly anticipated and largely reflects higher energy prices. Looking ahead to the next few months, inflation rates could temporarily increase further and are likely to stay slightly above 2% for most of 2011, before moderating again around the turn of the year. Overall, we continue to see evidence of short-term upward pressure on overall inflation, mainly owing to energy and commodity prices. Such pressure is also discernible in the earlier stages of the production process. These developments have not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments are still broadly balanced but, as already indicated in January, could move to the upside. Currently, upside risks relate, in particular, to developments in energy and non-energy commodity prices. Furthermore, increases in indirect taxes and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years, and price pressures in the production chain could rise further. On the downside, risks relate mainly to the impact on inflation of potentially lower growth, given the prevailing uncertainties.","Turning to the monetary analysis, the annual growth rate of M3 declined to 1.7% in December 2010, from 2.1% in November. The annual growth rate of loans to the private sector also declined, albeit marginally, to 1.9% in December, after 2.0% in November. These declines partly reflect the reversal of special factors that operated in November and do not indicate a general weakening of monetary dynamics. Overall, however, broad money and loan growth is still low, confirming the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium to long term should remain contained.","Looking at M3 components, annual M1 growth moderated further to stand at 4.4% in December 2010, reflecting the prevailing low remuneration of overnight deposits. At the same time, the yield curve has steepened somewhat further, implying that the attractiveness of short-term instruments included in M3 continues to decline compared with more highly remunerated longer-term instruments outside M3.","On the counterpart side, the annual growth rate of bank loans to the private sector continued to conceal differences in the magnitude of growth across sectors. The growth of loans to non-financial corporations stood at -0.2% in December, after -0.1% in the previous month, while the growth of loans to households strengthened to 3.0% in December, after 2.8% in November. Taking into account the effect of derecognition of loans from bank balance sheets and looking through short-term volatility, the latest data confirm a continued gradual strengthening in the annual growth of lending to the non-financial private sector.","At the same time, the latest data point to the overall size of bank balance sheets having contracted again after expanding for most of 2010, mainly on account of a reduction in lending between banks. It is important that banks continue to expand the provision of credit to the private sector, in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation.","To sum up, the current key ECB interest rates still remain appropriate. We therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 13 January 2011, we continue to see evidence of short-term upward pressure on overall inflation, mainly owing to energy and commodity prices. This has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. A cross-check of the outcome of our economic analysis with that of the monetary analysis indicates that inflationary pressures over the medium to long term should remain contained. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The continued firm anchoring of inflation expectations is of the essence.","Turning to fiscal policies, it is now essential that all governments fully implement their fiscal consolidation plans in 2011. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. Beyond 2011, countries need to specify concrete policy measures in their multi-year adjustment programmes so as to underpin the credibility of their fiscal consolidation targets. Experience shows that expenditure restraint is an important step towards achieving and maintaining fiscal soundness, notably when enshrined in binding domestic policy rules. Such a commitment helps to strengthen confidence in the sustainability of public finances, reduces interest rate risk premia and improves the conditions for sound and sustainable growth. The implementation of credible policies is crucial in view of ongoing financial market pressures.","Substantial and far-reaching structural reforms, complementing fiscal adjustment, should be urgently implemented to improve the prospects for higher sustainable growth and employment. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. Increased product market competition and labour market flexibility would further support the necessary adjustment processes in the economy. All these structural reforms should be supported by the necessary improvements in the structure of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.","We are now at your disposal for questions.","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, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The information which has become available since our meeting on 3 February 2011 indicates a rise in inflation, largely reflecting higher commodity prices. The economic analysis indicates that risks to the outlook for price developments are on the upside, while the underlying pace of monetary expansion remains moderate. Recent economic data confirm that the underlying momentum of economic activity in the euro area remains positive; however, uncertainty remains elevated. The current very accommodative stance of monetary policy lends considerable support to economic activity. It is essential that the recent rise in inflation does not give rise to broad-based inflationary pressures over the medium term. Strong vigilance is warranted with a view to containing upside risks to price stability. Overall, the Governing Council remains prepared to act in a firm and timely manner to ensure that upside risks to price stability over the medium term do not materialise. The continued firm anchoring of inflation expectations is of the essence.","The Governing Council today also decided to continue conducting its main refinancing operations (MROs) and the special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2011 on 12 July 2011. Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted on 27 April, 25 May and 29 June 2011 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","As we have stated before, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in both the third and the fourth quarter of 2010, recent statistical releases and survey-based evidence continue to confirm the positive underlying momentum of economic activity in the euro area at the beginning of 2011. Looking ahead, euro area exports should continue to be supported by the ongoing recovery in the world economy. At the same time, taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, benefiting from the very accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, the recovery in activity is expected to be dampened somewhat by the process of balance sheet adjustment in various sectors.","This assessment is also reflected in the March 2011 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 1.3% and 2.1% in 2011 and between 0.8% and 2.8% in 2012. Compared with the December 2010 Eurosystem staff macroeconomic projections, the lower ends of these ranges have been shifted upwards, reflecting better prospects for the global economy – and thus for euro area exports – as well as for domestic demand. The March 2011 ECB staff projections are broadly in line with forecasts by international organisations.","In the Governing Council’s assessment, the risks to this economic outlook are broadly balanced in a context of elevated uncertainty. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Downside risks also relate to further increases in commodity prices, in particular in view of renewed geopolitical tensions, and to protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.4% in February 2011, according to Eurostat’s flash estimate, after 2.3% in January. The increase in inflation rates in early 2011 largely reflects higher commodity prices. Pressure stemming from the sharp increases in energy and food prices is also discernible in the earlier stages of the production process. It is paramount that the rise in HICP inflation does not lead to second-round effects and thereby give rise to broad-based inflationary pressures over the medium term. Inflation expectations over the medium to longer term must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","The March 2011 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.0% and 2.6% for 2011 and between 1.0% and 2.4% for 2012. In comparison with the December 2010 Eurosystem staff macroeconomic projections, the ranges for HICP inflation have been shifted upwards. This is mainly due to the considerable rise in energy and food prices. It should be stressed that the projections are based on commodity price futures as of mid-February 2011, and therefore do not take into account the most recent oil price increases. Moreover, it needs to be emphasised that the projections assume continued moderate domestic wage and price-setting behaviour.","Risks to the medium-term outlook for price developments are on the upside. They relate, in particular, to higher than assumed increases in energy and non-energy commodity prices. Furthermore, increases in indirect taxes and administered prices may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, risks also relate to stronger than expected domestic price pressures in the context of the ongoing recovery in activity. Price and wage setters’ behaviour should not lead to broadly based second-round effects stemming from higher commodity prices.","Turning to the monetary analysis, the annual growth rate of M3 declined to 1.5% in January 2011, from 1.7% in December 2010, while the annual growth rate of loans to the private sector increased to 2.4% in January, from 1.9% in December. Looking beyond the movements in individual months and the effects of special factors, trends in broad money and loan growth confirm the assessment that the underlying pace of monetary expansion is still moderate and that inflationary pressures over the medium to longer term should remain contained. At the same time, the low level of money and credit growth has thus far led to only a partial unwinding of the large amounts of monetary liquidity accumulated in the economy prior to the period of financial tensions. This liquidity may facilitate the accommodation of price pressures currently emerging in commodity markets as a result of strong economic growth and ample liquidity at the global level.","Looking at M3 components, annual M1 growth moderated further to stand at 3.2% in January 2011, reflecting the prevailing low remuneration of overnight deposits. At the same time, the yield curve steepened somewhat further at the start of the year, implying that the attractiveness of short-term instruments included in M3 continues to decline compared with more highly remunerated longer-term instruments outside M3.","On the counterpart side, the rise in the annual growth rate of bank loans to the private sector in January was due to stronger lending to both households and non-financial corporations. The growth of loans to non-financial corporations turned positive, to stand at 0.4% in January, after -0.2% in December, while the growth of loans to households strengthened further to 3.1%, from 2.9% in December. Overall, lending to the non-financial private sector has gradually strengthened over the past few quarters, as the economic recovery gathered momentum.","The latest data also confirm that banks have continued to expand their lending to the euro area economy, while at the same time keeping the overall size of their balance sheets broadly unchanged. It is important that banks continue to expand the provision of credit to the private sector, in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.","To sum up, the Governing Council decided to leave the key ECB interest rates unchanged. The information which has become available since our meeting on 3 February 2011 indicates a rise in inflation, largely reflecting higher commodity prices. The economic analysis indicates that risks to the outlook for price developments are on the upside, while the cross-check with the monetary analysis indicates that the underlying pace of monetary expansion remains moderate. Recent economic data confirm that the underlying momentum of economic activity in the euro area remains positive; however, uncertainty remains elevated. The current very accommodative stance of monetary policy lends considerable support to economic activity. It is essential that the recent rise in inflation does not give rise to broad-based inflationary pressures over the medium term. Strong vigilance is warranted with a view to containing upside risks to price stability. Overall, the Governing Council remains prepared to act in a firm and timely manner to ensure that upside risks to price stability over the medium term do not materialise. The continued firm anchoring of inflation expectations is of the essence.","Turning to fiscal policies, all governments need to fully implement their fiscal consolidation plans in 2011. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. Beyond 2011, countries need to specify ambitious and concrete policy measures in their multi-year adjustment programmes, so as to underpin the credibility of their fiscal consolidation targets of ensuring a rapid correction of excessive deficits and returning to a close-to-balance or surplus position. Strengthening confidence in the sustainability of public finances is key, as this will reduce interest rate risk premia and improve the conditions for sound and sustainable growth.","At the same time, it is crucial that substantial and far-reaching structural reforms be implemented in the euro area to strengthen its growth potential, competitiveness and flexibility. In the case of product markets, policies that enhance competition and innovation should, in particular, be further pursued. On the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.","The current sovereign debt crisis in the euro area has reinforced the need for an ambitious reform of the economic governance framework of the euro area. The Governing Council of the ECB is of the view that the legislative proposals which have been put forward by the European Commission go some way to improving economic and budgetary surveillance in the euro area. However, they fall short of the necessary quantum leap in the surveillance of the euro area which is necessary to ensure the smooth functioning of Economic and Monetary Union. As outlined in the ECB’s opinion of 17 February 2011 on these proposals, more stringent requirements, more automaticity in the procedures and a clearer focus on the most vulnerable countries with losses in competitiveness are required to ensure that the new framework will indeed be effective in the long run.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Before we report on the outcome of today’s meeting, we wish to express our sincere sympathy to the people of Japan, after the tragic events and lamentable loss of life. All our thoughts are with those who have suffered directly or indirectly from the natural and nuclear disaster.","Let me now start reporting on the outcome of today’s meeting.","Based on its regular economic and monetary analyses, the Governing Council decided to increase the key ECB interest rates by 25 basis points, after maintaining them unchanged for almost two years at historically low levels. The adjustment of the current very accommodative monetary policy stance is warranted in the light of upside risks to price stability that we have identified in our economic analysis. While our monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low. Thus, the stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation. Recent economic data confirm that the underlying momentum of economic activity continues to be positive, with uncertainty remaining elevated. We will continue to monitor very closely all developments with respect to upside risks to price stability.","As stated on previous occasions, the provision of liquidity and the allotment modes for refinancing operations will also be adjusted when appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the fourth quarter of 2010, recent statistical releases and survey-based indicators point towards a continued positive underlying momentum of economic activity in the euro area in early 2011. Looking ahead, euro area exports should be supported by the ongoing recovery in the world economy. At the same time, taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to economic growth, benefiting from the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, the recovery in activity is expected to be dampened somewhat by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, continued strong business confidence could provide more support to domestic economic activity in the euro area than currently expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, in particular in view of ongoing geopolitical tensions, and to protectionist pressures and the possibility of a disorderly correction of global imbalances. Finally, there are potential risks stemming from the economic impact on the euro area and elsewhere of the recent natural and nuclear disaster in Japan.","With regard to price developments, euro area annual HICP inflation was 2.6% in March 2011, according to Eurostat’s flash estimate, after 2.4 % in February. The increase in inflation rates in early 2011 largely reflects higher commodity prices. Pressure stemming from the sharp increases in energy and food prices is also discernible in the earlier stages of the production process. It is of paramount importance that the rise in HICP inflation does not lead to second-round effects in price and wage-setting behaviour and thereby give rise to broad-based inflationary pressures over the medium term. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices, not least owing to ongoing political tensions in North Africa and the Middle East. More generally, strong economic growth in emerging markets, supported by ample liquidity at the global level, may further fuel commodity price rises. Moreover, increases in indirect taxes and administered prices may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, risks also relate to stronger than expected domestic price pressures in the context of the ongoing recovery in activity.","Turning to the monetary analysis, the annual growth rate of M3 increased to 2.0% in February 2011, from 1.5% in January. Looking through the recent volatility in broad money growth owing to special factors, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector also increased further to 2.6% in February, from 2.4% in the previous month. Hence, the underlying pace of monetary expansion is gradually picking up, but remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample and may facilitate the accommodation of price pressures in the euro area.","Looking at M3 components, annual M1 growth moderated further to 2.9% in February 2011, while the growth of other short-term deposits and marketable instruments has increased. This rebalancing within M3 reflects the impact of the recent steepening of the yield curve on the remuneration of different monetary assets. However, this steeper yield curve also implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3.","On the counterpart side, a further rise in the annual growth rate of bank loans to the private sector in February is due in part to a further slight strengthening in the growth of loans to non-financial corporations, which rose to 0.6% in February, after 0.5% in January. The growth of loans to households was 3.0% in February, compared with 3.1% in January. Overall, in early 2011 the positive flow of lending to the non-financial private sector has become more broadly based across the household and non-financial corporation sectors.","The latest data confirm that banks have expanded their lending to the private sector further, while at the same time the overall size of their balance sheets has remained broadly unchanged. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.","To sum up, the Governing Council decided to increase the key ECB interest rates by 25 basis points. The adjustment of the current very accommodative monetary policy stance is warranted in the light of upside risks to price stability that we have identified in our economic analysis. A cross-check with the signals from our monetary analysis indicates that while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low. Thus, the stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation. Recent economic data confirm that the underlying momentum of economic activity continues to be positive, with uncertainty remaining elevated. We will continue to monitor very closely all developments with respect to upside risks to price stability.","Turning to fiscal policies, it is essential that all governments achieve the consolidation targets for 2011 that they have announced. Moreover, the announcement of fully specified consolidation measures for 2012 and beyond would help to convince the general public and market participants that the corrective policies will be sustained. Strengthened confidence in the sustainability of public finances is key, as this will reduce interest rate risk premia and improve the conditions for sound and sustainable growth.","At the same time, it is crucial that substantial and far-reaching structural reforms be urgently implemented in the euro area to strengthen its growth potential, competitiveness and flexibility. In the case of product markets, policies that enhance competition and innovation should, in particular, be further pursued to speed up restructuring and to facilitate advances in productivity. On the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.","Finally, the Governing Council is of the view that the package of six legislative proposals on economic governance, adopted by the European Council at its summit on 24-25 March 2011, goes some way to improving economic and budgetary surveillance in the euro area. However, in our view, the proposals fall short of the necessary quantum leap in the surveillance of the euro area which is needed to ensure the smooth functioning of Economic and Monetary Union. Therefore, the Governing Council, in line with the ECB’s opinion of 17 February 2011 on these proposals, urges the ECOFIN Council, the European Parliament and the Commission to agree, in the context of their “trialogue”, on more stringent requirements, more automaticity in the procedures and a clearer focus on the most vulnerable countries with losses in competitiveness. All this would help to ensure that the new framework is effective in the long run.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Helsinki. I would like to thank Governor Liikanen for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of the meeting, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged following the 25-basis point increase on 7 April 2011. The information that has become available since then confirms our assessment that an adjustment of the very accommodative monetary policy stance was warranted. We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices. While the monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. Furthermore, recent economic data confirm the positive underlying momentum of economic activity in the euro area, with uncertainty continuing to be elevated. All in all, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Maintaining price stability over the medium term is our guiding principle, which we apply when assessing new information, forming our judgements and deciding on any further adjustment of the accommodative stance of monetary policy.","As stated on previous occasions, the provision of liquidity and the allotment modes for refinancing operations will also be adjusted when appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the fourth quarter of 2010, recent statistical releases and survey-based indicators point towards a continued positive underlying momentum of economic activity in the euro area during the first quarter of 2011 and at the beginning of the second quarter. Looking ahead, euro area exports should be supported by the ongoing expansion in the world economy. At the same time, taking into account the high level of business confidence in the euro area, private sector domestic demand should contribute increasingly to economic growth, benefiting from the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, activity is expected to continue to be dampened somewhat by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than currently expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, particularly in view of ongoing geopolitical tensions in North Africa and the Middle East, and to protectionist pressures and the possibility of a disorderly correction of global imbalances. Finally, there are still potential risks stemming from the economic impact on the euro area and elsewhere of the natural and nuclear disasters in Japan.","With regard to price developments, euro area annual HICP inflation was 2.8% in April according to Eurostat’s flash estimate, after 2.7% in March. The increase in inflation rates during the first four months of 2011 largely reflects higher commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Upward pressure on inflation, mainly from energy and commodity prices, is also discernible in the earlier stages of the production process. It is of paramount importance that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behaviour and lead to broad-based inflationary pressures. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices, not least on account of the ongoing political tensions in North Africa and the Middle East. More generally, strong economic growth in emerging markets, supported by ample liquidity at the global level, may further fuel commodity price rises. Moreover, increases in indirect taxes and administered prices may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, risks also relate to stronger than expected domestic price pressures in the context of the ongoing recovery in activity.","Turning to the monetary analysis, the annual growth rate of M3 increased to 2.3% in March 2011, from 2.1% in February. Looking through the recent volatility in broad money growth caused by special factors, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector remained broadly unchanged at 2.5% in March, after 2.6% in February. Overall, the underlying pace of monetary expansion is gradually picking up, but it remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample and may facilitate the accommodation of price pressures in the euro area.","Looking at M3 components, the annual growth rate of M1 remained broadly unchanged in March, while that of other short-term deposits increased. The development partly reflects the gradual increase in the remuneration of these deposits over recent months. At the same time, the steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3.","On the counterpart side, there has been a further slight strengthening in the growth of loans to non-financial corporations, which rose to 0.8% in March, after 0.6% in February. The growth of loans to households was 3.4% in March, compared with 3.0% in February. Looking through short-term volatility, the latest data confirm a continued gradual strengthening in the annual growth of lending to the non-financial private sector.","The overall size of bank balance sheets has remained broadly unchanged over the past few months, notwithstanding some volatility. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged following the 25-basis point increase on 7 April 2011. The information that has become available since then confirms our assessment that an adjustment of the very accommodative monetary policy stance was warranted. We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices. A cross-check with the signals coming from our monetary analysis indicates that, while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. Furthermore, recent economic data confirm the positive underlying momentum of economic activity in the euro area, with uncertainty continuing to be elevated. All in all, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Maintaining price stability over the medium term is our guiding principle, which we apply when assessing new information, forming our judgements and deciding on any further adjustment of the accommodative stance of monetary policy.","Turning to fiscal policies, current information points to uneven developments in countries’ adherence to the agreed fiscal consolidation plans. There is a risk that, in some countries, fiscal balances may fall behind the targets agreed by the ECOFIN Council for the necessary and timely correction of excessive deficits. It is essential that all governments meet the fiscal balance targets for 2011 that they have announced. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. The implementation of credible policies is crucial in view of ongoing financial market pressures.","At the same time, it is of the utmost importance that substantial and far-reaching structural reforms be implemented urgently in the euro area in order to strengthen its growth potential, competitiveness and flexibility. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should embark on comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should, in particular, be further pursued to speed up restructuring and to bring about improvements in productivity. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.","The Governing Council, in line with the ECB’s opinion of 17 February 2011 on the six legislative proposals on economic governance, urges the ECOFIN Council, the European Parliament and the European Commission to agree, in the context of their “trialogue”, on more stringent requirements, more automaticity in the procedures and a clearer focus on the most vulnerable countries with losses in competitiveness.","Finally, the Governing Council welcomes the economic and financial adjustment programme which was agreed by the Portuguese government following the successful conclusion of the negotiations with the European Commission, in liaison with the ECB, and the International Monetary Fund.","The programme contains the necessary elements to bring about a sustainable stabilisation of the Portuguese economy. It addresses in a decisive manner the economic and financial causes underlying current market concerns and will thereby contribute to restoring confidence and safeguarding financial stability in the euro area.","The Governing Council welcomes the commitment of the Portuguese public authorities to take all the necessary measures to achieve the objectives of the programme. It considers very important the broad political support for the adjustment programme, which enhances the overall credibility of the programme.","We are now at your disposal for questions.","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, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. The underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Furthermore, the most recent data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Overall, our monetary policy stance remains accommodative, lending support to economic activity. On balance, risks to the outlook for price stability are on the upside. Accordingly, strong vigilance is warranted. On the basis of our assessment, we will act in a firm and timely manner. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures. We remain strongly determined to secure a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. This is a prerequisite for monetary policy to make an ongoing contribution towards supporting growth and job creation in the euro area.","The Governing Council today also decided to continue conducting its main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the ninth maintenance period of 2011 on 11 October 2011. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the third quarter of 2011. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted on 27 July, 31 August and 28 September 2011 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","As stated on previous occasions, the provision of liquidity and the allotment modes for refinancing operations will be adjusted when appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2011, the euro area recorded strong real GDP growth of 0.8% quarter-on-quarter, following the 0.3% increase of the fourth quarter of 2010. Recent statistical releases and survey-based indicators point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace. This easing reflects the fact that the strong growth in the first quarter was partly due to special factors, which will cease to play a role in the second quarter. Hence, it is appropriate to look through such short-term volatility and to emphasise the positive underlying momentum of economic activity in the euro area. Looking ahead, euro area exports should be supported by the ongoing expansion in the world economy. At the same time, taking into account the favourable level of business confidence in the euro area, private sector domestic demand should contribute increasingly to economic growth, benefiting from the still accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, activity is expected to continue to be dampened somewhat by the process of balance sheet adjustment in various sectors.","This assessment is also reflected in the June 2011 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 1.5% and 2.3 % in 2011 and between 0.6 % and 2.8% in 2012. Compared with the March 2011 ECB staff macroeconomic projections, the range for 2011 has been revised upwards, while the range for 2012 remains broadly unchanged. The June 2011 Eurosystem staff projections are broadly in line with recent forecasts by international organisations.","In the Governing Council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. On the one hand, favourable business confidence could provide more support to domestic economic activity in the euro area than currently expected and higher foreign demand could also contribute more strongly to growth than expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.7% in May according to Eurostat’s flash estimate, after 2.8% in April. The relatively high inflation rates seen over the past few months largely reflect higher energy and commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Upward pressure on inflation, mainly from energy and commodity prices, is also discernible in the earlier stages of the production process. It remains of paramount importance that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behaviour and lead to broad-based inflationary pressures. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","The June 2011 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.5% and 2.7% for 2011 and between 1.1% and 2.3% for 2012. In comparison with the March 2011 ECB staff macroeconomic projections, the range for HICP inflation in 2011 has been revised upwards, largely reflecting higher energy prices. The projection range for 2012 has narrowed somewhat. It is appropriate to recall that the staff projections are conditional on a number of purely technical assumptions, including oil prices, interest rates and exchange rates. In particular, it is assumed that oil prices will decline somewhat and that short-term interest rates will rise, in accordance with market expectations. Overall the projections embody the view that the recent high rates of inflation do not lead to broader-based inflationary pressure in the euro area.","Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices. Furthermore, there is a risk of increases in indirect taxes and administered prices that may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, upside risks may come from stronger than expected domestic price pressures in the context of increasing capacity utilisation in the euro area.","Turning to the monetary analysis, the annual growth rate of M3 was 2.0% in April 2011, after 2.3% in March. Looking through the recent volatility in broad money growth, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector strengthened slightly to 2.6% in April, after 2.5% in March. Overall, the underlying pace of monetary expansion is gradually recovering. At the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample, with the potential to accommodate price pressures in the euro area.","Looking at M3 components, the annual growth rate of M1 decreased in April, while that of other short-term deposits increased. The development partly reflects the gradual increase in the remuneration of these deposits over recent months. At the same time, the steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3. However, available information suggests that this impact may be waning.","On the counterpart side, there has been a further slight strengthening in the growth of loans to non-financial corporations, which rose to 1.0% in April, after 0.8% in March. The growth of loans to households was 3.4% in April, unchanged from the previous month. The latest data confirm a continued gradual strengthening in the annual growth of lending to the non-financial private sector.","The overall size of bank balance sheets has remained broadly unchanged over the past few months, notwithstanding some volatility. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. A cross-check of the outcome of the economic analysis with that of the monetary analysis indicates that the underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Furthermore, the most recent data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Overall, our monetary policy stance remains accommodative, lending support to economic activity. On balance, risks to the outlook for price stability are on the upside. Accordingly, strong vigilance is warranted. On the basis of our assessment, we will act in a firm and timely manner. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures. We remain strongly determined to secure a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. This is a prerequisite for monetary policy to make an ongoing contribution towards supporting growth and job creation in the euro area.","Turning to fiscal policies, all parties involved in the preparation of the 2012 national budgets must ensure that they are fully in line with the requirement to support confidence in fiscal policies. A comparison between the latest economic forecasts by the European Commission and the fiscal plans embodied in the stability programmes points to the need for many countries to underpin their budget targets with concrete consolidation measures in order to correct their excessive deficits by the commonly agreed deadlines. The implementation of credible fiscal adjustment strategies is crucial in view of ongoing financial market pressures.","At the same time, the implementation of ambitious and far-reaching structural reforms is urgently required in the euro area to strengthen substantially its competitiveness, flexibility and longer-term growth potential. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should rapidly carry out comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should be vigorously pursued to facilitate productivity growth. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.","We are now at your disposal for questions.","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.","Based on its regular economic and monetary analyses, the Governing Council decided to increase the key ECB interest rates by 25 basis points, after raising rates by 25 basis points in April 2011 from historically low levels. The further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability. The underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low. Thus, our monetary policy stance remains accommodative, lending support to economic activity and job creation. As expected, recent economic data indicate some deceleration in the pace of economic growth in the second quarter of 2011. While the underlying momentum of economic growth in the euro area continues to be positive, uncertainty remains elevated. We will continue to monitor very closely all developments with respect to upside risks to price stability.","The provision of liquidity and the allotment modes for refinancing operations will be adjusted when appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2011 euro area real GDP posted a strong quarter-on-quarter increase of 0.8%, following the 0.3% increase in the last quarter of 2010. Recent statistical releases and survey-based indicators point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace. This moderation reflects the fact that the strong growth in the first quarter was in part due to special factors. The positive underlying momentum of economic activity in the euro area remains in place. Euro area exports should continue to be supported by the ongoing expansion in the world economy. At the same time, taking into account the present level of business confidence in the euro area, private sector domestic demand should contribute to economic growth. However, activity is expected to continue to be dampened somewhat by the process of balance sheet adjustment in various sectors.","In the Governing Council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. On the one hand, favourable business confidence could provide more support to domestic economic activity in the euro area than currently expected and higher foreign demand could also contribute more strongly to growth than expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.7% in June 2011 according to Eurostat’s flash estimate – the same rate as in May. The relatively high inflation rates seen over the past few months largely reflect higher energy and commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Upward pressure on inflation, mainly from energy and commodity prices, is also still discernible in the earlier stages of the production process. It remains of paramount importance that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behaviour and lead to broad-based inflationary pressures. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices. Furthermore, there is a risk of increases in indirect taxes and administered prices that may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, upside risks may stem from stronger than expected domestic price pressures in the context of increasing capacity utilisation in the euro area.","Turning to the monetary analysis, the annual growth rate of M3 increased to 2.4% in May 2011, from 2.0% in April. Looking through the recent volatility in broad money growth owing to special factors, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector continued to strengthen slightly, rising to 2.7% in May after 2.6% in April. Overall, the underlying pace of monetary expansion has continued its gradual recovery. At the same time, monetary liquidity accumulated prior to the period of financial market tensions continues to be ample, with the potential to accommodate price pressures in the euro area.","Looking at M3 components, the annual growth rate of M1 moderated further in May, whereas growth in other short-term deposits increased. These developments reflect in part the gradual increase in the remuneration of short-term time and savings deposits over recent months. At the same time, the steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3. However, recent information suggests that this impact may be waning.","On the counterpart side, the annual growth of loans to non-financial corporations and to households remained unchanged from April at 0.9% and 3.4% respectively, confirming the pattern of developments in previous months.","The overall size of bank balance sheets has remained broadly unchanged over recent months. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to increase the key ECB interest rates by 25 basis points, after raising rates by 25 basis points in April 2011 from historically low levels. The further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability. A cross-check of the outcome of the economic analysis with that of the monetary analysis indicates that the underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low. Thus, our monetary policy stance remains accommodative, lending support to economic activity and job creation. As expected, recent economic data indicate some deceleration in the pace of economic growth in the second quarter of 2011. While the underlying momentum of economic growth in the euro area continues to be positive, uncertainty remains elevated. We will continue to monitor very closely all developments with respect to upside risks to price stability.","Turning to fiscal policies, the current environment is very demanding and requires decisive action. Euro area countries must, as a minimum, comply with their fiscal consolidation commitments for 2011 and beyond, as foreseen under the respective excessive deficit procedures. Adequate and more frontloaded adjustment should ensure that structural fiscal consolidation targets are met, in line with the ECOFIN Council recommendations, and any better than expected economic and fiscal developments should be exploited to achieve faster deficit reduction. The announcement of fully specified consolidation measures for 2012 and beyond is essential to convince the general public and financial market participants that the corrective policies will be sustained and that public debt developments will be put on a sustainable path.","At the same time, it remains essential that substantial and comprehensive structural reforms are urgently implemented in the euro area to strengthen competitiveness, flexibility and longer-term growth potential. This is particularly relevant for countries with high fiscal and external deficits or with past losses in competitiveness. We welcome the introduction of the European Semester, including the recent submission of countries’ National Reform Programmes that incorporate commitments made under the Euro Plus Pact. We also support the European Council conclusions calling for more ambitious and well-defined reforms that should be frontloaded in order to foster competitiveness. In addition, the removal of labour market rigidities would strongly support the adjustment process. Measures which enhance wage flexibility, such as the elimination of automatic wage indexation, would help to accomplish the necessary adjustment.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged, following the 25 basis point increase on 7 July 2011. The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability. While the monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Continued moderate expansion is expected in the period ahead. However, uncertainty is particularly high. For monetary policy, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. At the same time, short-term interest rates remain low and financing conditions are favourable. Thus, our monetary policy stance remains accommodative. We will continue to monitor very closely all developments with respect to upside risks to price stability.","Given the renewed tensions in some financial markets in the euro area, the Governing Council today also decided to conduct a liquidity-providing supplementary longer-term refinancing operation (LTRO) with a maturity of approximately six months. The operation will be conducted as a fixed rate tender procedure with full allotment. The rate in this operation will be fixed at the average rate of the main refinancing operations (MROs) over the life of the supplementary LTRO. The operation will be announced on 9 August 2011, with allotment on 10 August 2011 and settlement on 11 August 2011, and will mature on 1 March 2012.","The Governing Council also decided to continue conducting its MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last maintenance period of 2011 on 17 January 2012. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the last quarter of 2011. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time.","Furthermore, the Governing Council has decided to conduct the three-month LTROs to be allotted on 26 October, 30 November and 21 December 2011 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2011 euro area real GDP posted a strong quarter-on-quarter increase of 0.8%. Data and survey releases for the second quarter point towards ongoing real GDP growth, albeit, as expected, at a slower pace. This moderation also reflects the fact that the strong growth in the first quarter was in part due to special factors. The underlying positive momentum of economic growth in the euro area remains in place and continued moderate expansion is expected in the period ahead. Euro area exports should continue to be supported by the ongoing expansion in the world economy. In addition, the present level of consumer and business confidence in the euro area supports private sector domestic demand. However, growth dynamics are currently weakened by a number of factors contributing to uncertainty, and activity is expected to be dampened somewhat by the ongoing process of balance sheet adjustment in various regions and sectors.","In the Governing Council’s assessment, the risks to this economic outlook for the euro area remain broadly balanced in an environment of particularly high uncertainty. On the one hand, consumer and business confidence, together with improvements in labour market conditions, could continue to provide support to domestic economic activity. On the other hand, downside risks may have intensified. They relate to the ongoing tensions in some segments of the euro area financial markets as well as to global developments, and the potential for these pressures to spill over into the euro area real economy. Downside risks also relate to further increases in energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.5% in July 2011, following 2.7% in June. The relatively high inflation rates seen over the past few months largely reflect higher energy and other commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Upward pressure on inflation, mainly from energy and other commodity prices, is also still discernible in the earlier stages of the production process. It remains of paramount importance that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behaviour and lead to broad-based inflationary pressures. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.","Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices. Furthermore, there is a risk of increases in indirect taxes and administered prices that may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, upside risks may stem from stronger than expected domestic price pressures in the euro area.","Turning to the monetary analysis, the annual growth rate of M3 decreased to 2.1% in June 2011, from 2.5% in May. Looking through the recent monthly volatility, M3 growth has broadly stabilised over recent months, after edging up until the first quarter of 2011. The annual growth rate of loans to the private sector declined to 2.5% in June, from 2.7% in May. Overall, the underlying pace of monetary expansion remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions continues to be ample, and may facilitate the accommodation of price pressures in the euro area.","Looking at M3 components, the annual growth rate of M1 remained unchanged at 1.2%, whereas growth in other short-term deposits declined to 3.7%. The growth differentials continue to reflect in part the gradual increase in the remuneration of short-term time and savings deposits over recent months. At the same time, the still relatively steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3. However, this impact is likely to be waning. On the counterpart side, the annual growth of loans to non-financial corporations continued to edge up, from 0.9% in May to 1.5% in June, whereas the annual growth of loans to households hovered over recent months around rates of slightly above 3%.","The overall size of MFI balance sheets has remained broadly unchanged over recent months. Where it is necessary to provide adequate scope to expand the provision of credit to the private sector, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency. In this respect, we welcome the EU-wide stress-testing exercise, which was prepared by the European Banking Authority and national supervisors, in close cooperation with the ECB. We also welcome the commitment made by national authorities with regard to the provision of support facilities for banks where private sector means are insufficient.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged, following the 25 basis point increase on 7 July 2011. The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability. A cross-check with the signals coming from the monetary analysis indicates that while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Continued moderate expansion is expected in the period ahead. However, uncertainty is particularly high. For monetary policy, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. At the same time, short-term interest rates remain low and financing conditions favourable. Thus, our monetary policy stance remains accommodative. We will continue to monitor very closely all developments with respect to upside risks to price stability.","Turning to fiscal policies, the Governing Council stresses the need for strict and timely implementation of the IMF/EU adjustment programmes in Greece, Ireland and Portugal. In addition, it underlines the importance of the renewed commitment of all Heads of State or Government of the euro area to adhere strictly to the agreed fiscal targets. For several countries, this requires announcing and implementing additional and more frontloaded fiscal adjustment measures. Those that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. The common aim should be to put public debt ratios and public finances on a sustainable path as soon as possible. As emphasised by the Heads of State or Government of the euro area, the inflexible determination of all euro area countries to fully honour their own individual sovereign signature is a decisive element in ensuring financial stability in the euro area as a whole.","The Governing Council also welcomes the renewed commitment of all Member States to improve competitiveness and address macroeconomic imbalances. Indeed, substantial and comprehensive structural reforms need to be implemented in the countries of the euro area in order to increase the flexibility of their economies and their longer-term growth potential. The removal of labour market rigidities and the implementation of measures which enhance wage flexibility, notably the elimination of automatic wage indexation clauses, are of key importance.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and is likely to stay above 2% over the months ahead before declining next year. At the same time, the underlying pace of monetary expansion continues to be moderate, while monetary liquidity remains ample. As expected, the pace of economic growth in the euro area decelerated in the second quarter, following strong growth in the first quarter. Looking ahead, we expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates are low. While our monetary policy stance remains accommodative, some financing conditions have tightened. It remains essential for monetary policy to focus on its mandate of maintaining price stability over the medium term, thereby ensuring that recent price developments do not give rise to broad-based inflationary pressures. A very thorough analysis of all incoming data and developments over the period ahead is warranted. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. We will continue to monitor very closely all developments.","The provision of liquidity and the allotment modes for refinancing operations will continue to ensure that euro area banks are not constrained on the liquidity side. All the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP growth decelerated to 0.2% quarter on quarter in the second quarter of 2011, after 0.8% in the first quarter. As expected, temporary factors which had boosted growth in the early part of the year ceased, and adverse effects resulted from the Japanese earthquake and the lagged impact of past oil price increases. Looking ahead, a number of developments seem to be dampening the underlying momentum in the euro area, including a moderation in the pace of global growth, related declines in equity prices and in business confidence, and unfavourable effects resulting from ongoing tensions in a number of euro area sovereign debt markets. As a consequence, real GDP growth is expected to increase very moderately in the second half of this year. At the same time, we continue to expect euro area economic activity to benefit from ongoing growth in the global economy as well as from the accommodative monetary policy stance and the various measures taken to support the functioning of the financial sector.","This assessment is also reflected in the September 2011 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 1.4% and 1.8% in 2011 and between 0.4% and 2.2% in 2012. Compared with the June 2011 Eurosystem staff macroeconomic projections, the ranges for real GDP growth in 2011 and 2012 have been revised downwards.","In the Governing Council’s assessment, the risks to the economic outlook for the euro area are on the downside, in an environment of particularly high uncertainty. Downside risks mainly relate to the ongoing tensions in some segments of the financial markets in the euro area and at the global level, as well as to the potential for these pressures to spill over into the euro area real economy. They also relate to further increases in energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 2.5% in August 2011, according to Eurostat’s flash estimate, unchanged from July. We have now seen inflation rates at relatively high levels since the end of last year, with higher energy and other commodity prices as the main drivers. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Thereafter, on the basis of the path implied by futures markets for oil prices, inflation rates should fall below 2% in 2012. This pattern reflects the expectation of relatively stable wage growth developments in the context of moderate economic growth.","The September 2011 ECB staff macroeconomic projections for the euro area embody these considerations and foresee annual HICP inflation in a range between 2.5% and 2.7% for 2011 and between 1.2% and 2.2% for 2012. In comparison with the June 2011 Eurosystem staff macroeconomic projections, the range for HICP inflation in 2011 remains unchanged, while the range for 2012 is slightly narrower. It is necessary to recall that the staff projections are conditional on a number of purely technical assumptions.","The Governing Council views the risks to the medium-term outlook for price developments as being broadly balanced. On the upside, the main risks relate to the possibility of higher than assumed increases in oil and non-oil commodity prices as well as increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.","Turning to the monetary analysis, the annual growth rate of M3 was 2.0% in July 2011, after 1.9% in June. The annual growth rate of loans to the private sector was 2.4% in July, after 2.5% in June. Looking beyond the monthly data and the effects of special factors, trends in broad money and loan growth have broadly stabilised over recent months. Overall, the underlying pace of monetary expansion remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions continues to be ample.","Looking at M3 components, the annual growth rate of M1 decreased to 0.9% in July, whereas growth in other short-term deposits remained unchanged at 3.7%. These developments continue to partly reflect the gradual increase in the remuneration of short-term time and savings deposits over recent months. On the counterpart side, the annual growth of loans to non-financial corporations continued to edge up slightly, from 1.5% in June to 1.6% in July, whereas the annual growth of loans to households seems to have levelled off at around 3%.","The overall size of MFI balance sheets has remained broadly unchanged over recent months. Where it is necessary to provide adequate scope to expand the provision of credit to the private sector, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation, in line with the findings of the recent stress tests.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and is likely to stay above 2% over the months ahead before declining next year. A cross- check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate, while monetary liquidity remains ample. As expected, the pace of economic growth in the euro area decelerated in the second quarter, following strong growth in the first quarter. Looking ahead, we expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates are low. While our monetary policy stance remains accommodative, some financing conditions have tightened. It remains essential for monetary policy to focus on its mandate of maintaining price stability over the medium term, thereby ensuring that recent price developments do not give rise to broad-based inflationary pressures. A very thorough analysis of all incoming data and developments over the period ahead is warranted. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. We will continue to monitor very closely all developments.","Turning to fiscal policies, a number of governments have announced additional measures to ensure the achievement of their consolidation targets and to strengthen the legal basis for national fiscal rules. To ensure credibility, it is now crucial that the announced measures be frontloaded and implemented in full. Governments need to stand ready to implement further consolidation measures, notably on the expenditure side, if risks regarding the attainment of the current fiscal targets materialise. Countries that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. All euro area governments need to demonstrate their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole.","Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, we should see the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements so that wages and working conditions can be tailored to firms’ specific needs. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness.","We are now at your disposal for questions.","Ladies and gentlemen, dear President Trichet, dear Vice-President Constancio, welcome to the regional office of Bundesbank in Berlin where the ECB Governing Council held its 319th meeting earlier today.","It has become a tradition that twice a year the Governing Council meets outside Frankfurt with one of the Eurosystem national central banks acting as host.","This time it was the Deutsche Bundesbank’s turn, and I must say it has been an honour to welcome the Governing Council here in the German capital.","Before I give the floor to President Trichet I would like to use this opportunity to offer my sincere thanks to him. As you will be aware, today he chaired his penultimate Governing Council meeting and will be giving his final post-meeting press conference in a little while.","This monthly press briefing has been like a piano that you have played as masterfully as any professional pianist would. Over the past 8 years you have commanded this stage – usually in Frankfurt – to gently steer market expectations using a careful and deliberate choice of words to give clear messages to the markets.","I am certain that the corps of journalists will miss the typically French elegance with which you have chaired past press conferences.","Although I became a member of the Governing Council only recently I feel lucky and grateful to have had first-hand experience of your diplomatic but consistently focussed style of chairmanship.","As I already mentioned, you have been President of the ECB for 8 years, the last 4 years of which have proved very demanding.","It is no overstatement when I say, that, Jean-Claude has fought passionately and with tireless and unconditional conviction to overcome the European debt crisis.","What is often forgotten these days, are the achievements of the Eurosystem in the past decade. You would be right to point out that “we have delivered price stability for 330 million people”.","This is in large part thanks to your own personal efforts and I would like to use this opportunity to thank you on behalf of the Bundesbank and the other national central banks for the excellent job you have done over the past 8 years.","During your time living and working in Germany you have often stressed how fond you are of this country and its language.","I therefore hope that we will have the continued pleasure of seeing you in Germany again many times in the future.","But now, Mr. President, the floor is yours.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Berlin. Let me take the opportunity to warmly thank President Weidmann for his invitation and kind hospitality. I would also like to express our special gratitude to the staff of the Deutsche Bundesbank for the excellent organisation of our meeting. Let me now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Rehn.","Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and incoming information has confirmed our view that inflation is likely to stay above 2% over the months ahead but to decline thereafter. At the same time, the underlying pace of monetary expansion continues to be moderate. Ongoing tensions in financial markets and unfavourable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates remain low. It remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.","The Governing Council has decided to conduct two longer-term refinancing operations (LTROs), one with a maturity of approximately 12 months in October and the other with a maturity of approximately 13 months in December. The operations will be conducted as fixed rate tender procedures with full allotment. The rate in both operations will be fixed at the average rate of the main refinancing operations (MROs) over the life of the respective LTRO, and interest will be paid when each operation matures. These operations will be conducted in addition to the regular and special-term refinancing operations, which remain unaffected.","The Governing Council has also decided to continue conducting its MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2012 on 10 July 2012. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the sixth maintenance period (i.e. around the end of the second quarter) of 2012. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time.","In addition, the Governing Council has decided to conduct the three-month LTROs to be allotted on 25 January, 29 February, 28 March, 25 April, 30 May and 27 June 2012 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","Furthermore, the Governing Council has decided to launch a new covered bond purchase programme (CBPP2). The programme will have the following modalities:","The purchases will be for an intended amount of EUR 40 billion.","The purchases will have the capacity to be conducted in the primary and secondary markets and will be carried out by means of direct purchases.","The purchases will start in November 2011 and are expected to be fully implemented by the end of October 2012.","Further details on the modalities of CBPP2 will be announced after the Governing Council meeting of 3 November 2011.","The provision of liquidity and the allotment modes for refinancing operations will continue to ensure that euro area banks are not constrained on the liquidity side. All the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP growth in the euro area, after slowing in the second quarter of 2011 to 0.2% quarter on quarter, is now expected to be very moderate in the second half of this year. In particular, a number of factors seem to be dampening the underlying growth momentum in the euro area, including a moderation in the pace of global demand, falling consumer and business confidence, and unfavourable effects on financing conditions resulting from ongoing tensions in a number of euro area sovereign debt markets. At the same time, we continue to expect euro area economic activity to benefit from continued positive growth in the emerging market economies as well as from the low short-term interest rates and the various measures taken to support the functioning of the financial sector.","In the Governing Council’s assessment, the risks to the economic outlook for the euro area remain on the downside in an environment of particularly high uncertainty. Downside risks notably relate to the ongoing tensions in some segments of the financial markets in the euro area and at the global level, as well as to the potential for these pressures to further spill over into the euro area real economy. They also relate to the still high energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 3.0% in September 2011, according to Eurostat’s flash estimate, after 2.5% in August. Inflation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months but to decline thereafter. This pattern reflects the expectation of relatively stable wage growth developments in the context of moderate economic growth.","The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to the possibility of increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.","Turning to the monetary analysis, the annual growth rate of M3 was 2.8% in August 2011, up from 2.1% in July. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, was 2.8% in August, after 2.6% in July. A number of factors, possibly related to the intensification of tensions in some financial markets, could have had an upward effect on the components of M3. In particular, sizeable inflows into overnight deposits and money market fund shares/units, as well as a substantial inflow into repurchase agreements, appear to have driven monetary developments in August. The inflow into repurchase agreements mainly reflected secured lending in the interbank market, which was increasingly settled via central counterparties that are allocated to the money-holding sector. Overall, M3 growth was driven in particular by the increase in the annual growth rate of M1 from 1.0% in July to 1.7% in August and the increase in the annual growth rate of marketable instruments.","On the counterpart side, the annual growth rate of loans to non-financial corporations and to households in August, both adjusted for loan sales and securitisation, remained unchanged from July, at 2.2% and 2.7% respectively. Taking the appropriate medium-term perspective, trends in broad money and loan growth have broadly stabilised over recent months. Overall, the underlying pace of monetary expansion thus remains moderate.","The situation of the banking sector calls for particular attention, taking into account the interplay between sovereign risk issues and banks’ funding needs. As we have done on previous occasions, the Governing Council urges banks to do all that is necessary to reinforce their balance sheets, to retain earnings, to ensure moderation in remuneration, and to turn to the market to strengthen further their capital bases. Where necessary, they should take full advantage of government support measures, which should be made totally operational, including the possibility in future for the European Financial Stability Facility (EFSF) to lend to governments in order to recapitalise banks.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and incoming information has confirmed our view that inflation is likely to stay above 2% over the months ahead but to decline thereafter. A cross-check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate. Ongoing tensions in financial markets and unfavourable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates remain low. It remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.","Turning to fiscal policies, with financial market uncertainty remaining high, all governments need to take decisive and frontloaded action to bolster public confidence in the sustainability of government finances. All euro area governments need to show their inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole. Countries under joint EU-IMF adjustment programmes as well as those particularly vulnerable to financial market conditions need to unambiguously implement all announced measures for fiscal consolidation and the strengthening of domestic fiscal frameworks, and they need to stand ready to take any additional measures that may become necessary owing to the evolution of their situation.","Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, we should see the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements. More generally, in these demanding times, moderation is of the essence in terms of both profit margins and wages. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness. At the same time, the Governing Council urges all euro area governments to fully implement all aspects of the decisions they took on 21 July 2011.","Let me close with some personal remarks. This is my last press conference following a meeting of the Governing Council. I remember my first press conference, eight years ago, as if it were yesterday. I want to tell you that it has been a great pleasure to have this regular dialogue with the press, with all of you. We have, together, each of us with our different responsibilities, analysed the European and global situation throughout these years. We were never in calm waters. But for more than four years now, we have been experiencing turbulent waters, storms, unexpected hurricanes. In demanding times, regular, real-time and transparent communication is more important than ever. The channels of national, European and global communication which you are responsible for are crucial for the appropriate functioning of markets, for the correct understanding of economists and economic agents, and for the information of the people of Europe, our fellow citizens, to whom, as an independent institution, we are accountable. Eight years ago the concept of a press conference immediately after the meeting of the Governing Council was still considered a bold innovation. Today it is part of the global state of the art. And the Vice-President and I also have to thank you for that.","We are now at your disposal for questions.","Ladies and gentlemen, welcome to our press conference. Today is the first time that I have had the privilege and pleasure of chairing the meeting of the Governing Council of the ECB. I am delighted to proceed now with our well-established practice of real-time communication and to report on the outcome of our meeting, together with the Vice-President.","Based on its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by 25 basis points. While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%. At the same time, the underlying pace of monetary expansion continues to be moderate. After today’s decision, inflation should remain in line with price stability over the policy-relevant horizon. Owing to their unfavourable effects on financing conditions and confidence, the ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of this year and beyond. The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely. In such an environment, price, cost and wage pressures in the euro area should also moderate; today’s decision takes this into account. Overall, it remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area.","The provision of liquidity and the allotment modes for refinancing operations will continue to ensure that euro area banks are not constrained on the liquidity side. All the non-standard monetary policy measures taken during the period of acute financial market tensions are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP growth in the euro area, which slowed in the second quarter of 2011 to 0.2% quarter on quarter, is expected to be very moderate in the second half of this year. There are signs that previously identified downside risks have been materialising, as reflected in unfavourable evidence from survey data. Looking forward, a number of factors seem to be dampening the underlying growth momentum in the euro area, including a moderation in the pace of global demand and unfavourable effects on overall financing conditions and on confidence resulting from ongoing tensions in a number of euro area sovereign debt markets. At the same time, we continue to expect euro area economic activity to benefit from continued positive economic growth in the emerging market economies, as well as from the low short-term interest rates and the various measures taken to support the functioning of the financial sector.","In the Governing Council’s assessment, the downside risks to the economic outlook for the euro area are confirmed in an environment of particularly high uncertainty. Downside risks notably relate to a further intensification of the tensions in some segments of the financial markets in the euro area and at the global level, as well as to the potential for these pressures to further spill over into the euro area real economy. They also relate to the impact of the still high energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 3.0% in October according to Eurostat’s flash estimate, unchanged from September. Inflation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, they are likely to stay above 2% for some months to come, before falling below 2% in the course of 2012. Inflation rates are expected to remain in line with price stability over the policy-relevant horizon. This pattern reflects the expectation that, in an environment of weaker euro area and global growth, price, cost and wage pressures in the euro area should also moderate.","The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced, taking also into account today’s decision. On the upside, the main risks relate to the possibility of increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. In the current environment, however, inflationary pressure should abate. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally. In fact, if sustained, sluggish economic growth has the potential to reduce medium-term inflationary pressure in the euro area.","Turning to the monetary analysis, the annual growth rate of M3 increased to 3.1% in September 2011, up from 2.7% in August. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, was 2.7% in September, unchanged from August. As in August, inflows into M3 also reflect the heightened tensions in some financial markets. In particular, inflows into money market fund shares/units, as well as into repurchase agreements conducted through central counterparties, appear to have significantly affected monetary developments in September. The annual growth rate of M1 increased to 2.0% in September, from 1.7% in August.","On the counterpart side, the annual growth rate of loans to non-financial corporations and to households in September, adjusted for loan sales and securitisation, remained broadly unchanged compared with August, at 2.2% and 2.6% respectively. These figures do not signal that the heightened financial market tensions have affected the supply of credit up to September. However, as such effects can manifest themselves with lags, close scrutiny of credit developments is warranted in the period ahead. Taking the appropriate medium-term perspective and looking through short-term volatility, underlying broad money and loan growth have stabilised over recent months. Overall, the underlying pace of monetary expansion thus remains moderate.","The overall size of monetary financial institutions’ balance sheets remained broadly unchanged over the past few months. The soundness of bank balance sheets will be a key factor in reducing potential negative feedback loop effects related to tensions in financial markets, thereby facilitating an appropriate provision of credit to the economy over time. We therefore welcome the agreement of the European Council to proceed with the increase in the capital position of banks to 9% of core Tier 1 by the end of June 2012. We also fully support the call to national supervisors to ensure that banks' recapitalisation plans do not lead to excessive deleveraging.","To sum up, based on its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by 25 basis points. While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%. A cross-check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate. After today’s decision, inflation should remain in line with price stability over the policy-relevant horizon. Owing to their unfavourable effects on financing conditions and confidence, the ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of this year and beyond. The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely. In such an environment, price, cost and wage pressures in the euro area should also moderate; today’s decision takes this into account. Overall, it remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area.","Turning to fiscal policies, all euro area governments need to show their inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole. The Governing Council takes note of the fiscal commitments expressed in the Euro Summit statement of 26 October 2011 and urges all governments to implement fully and as quickly as possible the measures necessary to achieve fiscal consolidation and sustainable pension systems, as well as to improve governance. The governments of countries under joint EU-IMF adjustment programmes and those of countries that are particularly vulnerable should stand ready to take any additional measures that become necessary.","It is crucial that fiscal consolidation and structural reforms go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore calls upon all euro area governments to accelerate, urgently, the implementation of substantial and comprehensive structural reforms. This will help the euro area countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are essential and should focus on measures to remove rigidities and to enhance wage flexibility, so that wages and working conditions can be tailored to the specific needs of firms. More generally, in these demanding times, moderation is of the essence in terms of both profit margins and wages. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector. At the same time, the Governing Council stresses that it is absolutely imperative that euro area national authorities rapidly adopt and implement the measures announced and recommended in the Euro Summit statement of 26 October 2011.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will report on the outcome of today’s meeting of the Governing Council.","Based on its regular economic and monetary analyses, the Governing Council decided to lower the  key ECB interest rates by 25 basis points, following the 25 basis point decrease on 3 November 2011. Inflation is likely to stay above 2% for several months to come, before declining to below 2%. The intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest over the policy-relevant horizon. At the same time, the underlying pace of monetary expansion remains moderate. Overall, it is essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area.","In its continued efforts to support the liquidity situation of euro area banks, and following the coordinated central bank action on 30 November 2011 to provide liquidity to the global financial system, the Governing Council today also decided to adopt further non-standard measures. These measures should ensure enhanced access of the banking sector to liquidity and facilitate the functioning of the euro area money market. They are expected to support the provision of credit to households and non-financial corporations. In this context, the Governing Council decided:","First, to conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months and the option of early repayment after one year. The operations will be conducted as fixed rate tender procedures with full allotment. The rate in these operations will be fixed at the average rate of the main refinancing operations over the life of the respective operation. Interest will be paid when the respective operation matures. The first operation will be allotted on 21 December 2011 and will replace the 12-month LTRO announced on 6 October 2011.","Second, to increase collateral availability by reducing the rating threshold for certain asset-backed securities (ABS). In addition to the ABS that are already eligible for Eurosystem operations, ABS having a second best rating of at least “single A” in the Eurosystem harmonised credit scale at issuance, and at all times subsequently, and the underlying assets of which comprise residential mortgages and loans to small and medium-sized enterprises, will be eligible for use as collateral in Eurosystem credit operations. Moreover, national central banks will be allowed, as a temporary solution, to accept as collateral additional performing credit claims (namely bank loans) that satisfy specific eligibility criteria. The responsibility entailed in the acceptance of such credit claims will be borne by the national central bank authorising their use. These measures will take effect as soon as the relevant legal acts have been published.","Third, to reduce the reserve ratio, which is currently 2%, to 1%. This will free up collateral and support money market activity. As a consequence of the full allotment policy applied in the ECB’s main refinancing operations and the way banks are using this option, the system of reserve requirements is not needed to the same extent as under normal circumstances to steer money market conditions. This measure will take effect as of the maintenance period starting on 18 January 2012.","Fourth, to discontinue for the time being, as of the maintenance period starting on 14 December 2011, the fine-tuning operations carried out on the last day of each maintenance period. This is a technical measure to support money market activity.","A detailed press release will be published at 3.30 p.m. today on the ECB’s website. As stated on previous occasions, all the non-standard monetary policy measures are, by construction, temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area grew by 0.2% quarter on quarter in the third quarter of 2011, unchanged from the previous quarter. Evidence from survey data points to weaker economic activity in the fourth quarter of this year. A number of factors seem to be dampening the underlying growth momentum in the euro area. They include a moderation in the pace of global demand growth and unfavourable effects on overall financing conditions and on confidence resulting from ongoing tensions in euro area sovereign debt markets, as well as the process of balance sheet adjustment in the financial and non-financial sectors. At the same time, we expect euro area economic activity to recover, albeit very gradually, in the course of next year, supported by resilient global demand, very low short-term interest rates and all the measures taken to support the functioning of the financial sector.","This assessment is also reflected in the December 2011 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 1.5% and 1.7% in 2011, between -0.4% and 1.0% in 2012 and between 0.3% and 2.3% in 2013. Compared with the September 2011 ECB staff macroeconomic projections, there is a narrowing of the range of the real GDP growth projection for 2011 and a significant downward revision of the range for 2012. These revisions mainly reflect the impact on domestic demand of weaker confidence and worsening financing conditions, stemming from the heightened uncertainty related to the sovereign debt crisis, as well as downward revisions of foreign demand.","In the Governing Council’s assessment, substantial downside risks to the economic outlook for the euro area exist in an environment of high uncertainty. Downside risks notably relate to a further intensification of the tensions in euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to the global economy, which may be weaker than expected, as well as to protectionist pressures and the possibility of a disorderly correction of global imbalances.","With regard to price developments, euro area annual HICP inflation was 3.0% in November, according to Eurostat’s flash estimate, unchanged from the two previous months. Inflation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, they are likely to stay above 2% for several months to come, before declining to below 2%. This pattern reflects the expectation that, in an environment of weaker growth in the euro area and globally, underlying cost, wage and price pressures in the euro area should also remain modest.","This assessment is also reflected in the December 2011 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 2.6% and 2.8% for 2011, between 1.5% and 2.5% for 2012 and between 0.8% and 2.2% for 2013. Compared with the September 2011 ECB staff macroeconomic projections, the projection ranges for 2011 and 2012 have been revised slightly upwards. This results from the upward impact of higher oil prices in euro terms, as well as a higher contribution from indirect taxes. The upward impact of these factors is expected to more than compensate the downward adjustments to profit margins and wage growth that are related to the downward revision of activity.","The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to further increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.","Turning to the monetary analysis, the annual growth rate of M3 decreased to 2.6% in October 2011, after 3.0% in September. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, increased to 3.0% in October, compared with 2.7% in September. As in the previous two months, the monetary data for October reflect the heightened uncertainty in financial markets.","On the counterpart side, the annual growth rates of loans to non-financial corporations and loans to households, adjusted for loan sales and securitisation, remained broadly unchanged in October, at 2.3% and 2.5% respectively. The unadjusted growth rates were lower, owing to substantial securitisation activities in October. Overall, the figures on lending do not suggest that the heightened financial market tensions have significantly affected the supply of credit in the period to October. However, given that credit supply effects can manifest themselves with lags, close scrutiny of credit developments is warranted in the period ahead.","Taking the appropriate medium-term perspective and looking through short-term volatility, overall, the underlying pace of monetary expansion remains moderate.","The soundness of bank balance sheets will be a key factor in reducing potential negative feedback loop effects related to tensions in financial markets, thereby facilitating an appropriate provision of credit to the economy over time. The agreement of the European Council of 26 October to proceed with the increase in the capital position of banks to 9% of core Tier 1 by the end of June 2012 should improve the euro area banking sector’s resilience over the medium term. In this respect, it is essential that national supervisors ensure that the implementation of banks’ recapitalisation plans does not result in developments that are detrimental to the financing of economic activity in the euro area.","To sum up, inflation is likely to stay above 2% for several months to come, before declining to below 2%. Intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks. In such an environment, price, cost and wage pressures in the euro area should remain modest over the policy-relevant horizon. A cross-check with the signals from the monetary analysis confirms this picture, with the underlying pace of monetary expansion remaining moderate.","Turning to fiscal policies, all euro area governments urgently need to do their utmost to support fiscal sustainability in the euro area as a whole. A new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is the most important precondition for restoring the normal functioning of financial markets. Policy-makers need to correct excessive deficits and move to balanced budgets in the coming years by specifying and implementing the necessary adjustment measures. This will support public confidence in the soundness of policy actions and thus strengthen overall economic sentiment.","To accompany fiscal consolidation, the Governing Council has repeatedly called for bold and ambitious structural reforms. Going hand in hand, fiscal consolidation and structural reforms would strengthen confidence, growth prospects and job creation. Key reforms should be immediately carried out to help the euro area countries to improve competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. Labour market reforms should focus on removing rigidities and enhancing wage flexibility. Product market reforms should focus on fully opening up markets to increased competition.","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. We will now report on the outcome of today’s meeting of the Governing Council.","Based on its regular economic and monetary analyses, the Governing Council decided today to keep the key ECB interest rates unchanged, following the 25 basis point decreases on 3 November and 8 December 2011. The information that has become available since early December broadly confirms our previous assessment. Inflation is likely to stay above 2% for several months to come, before declining to below 2%. At the same time, the underlying pace of monetary expansion remains moderate. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilisation in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon. Overall, it is essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.","The provision of liquidity and the allotment modes for refinancing operations will continue to support euro area banks, and thus the financing of the real economy. The extensive recourse to the first three-year refinancing operation indicates that our non-standard policy measures are providing a substantial contribution to improving the funding situation of banks, thereby supporting financing conditions and confidence. In addition, we are actively working towards the implementation of all the measures announced at our December meeting, which should provide additional support to the economy. As stated on previous occasions, all the non-standard monetary policy measures are temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area grew by 0.1% quarter on quarter in the third quarter of 2011. At present, a number of factors seem to be dampening the underlying growth momentum in the euro area. They include moderate global demand growth and weak business and consumer confidence in the euro area. Domestic demand is likely to be dampened by the ongoing tensions in euro area sovereign debt markets, as well as the process of balance sheet adjustment in the financial and non-financial sectors. At the same time, we continue to expect euro area economic activity to recover, albeit very gradually, in the course of 2012, supported by developments in global demand, very low short-term interest rates and all the measures taken to support the functioning of the financial sector.","In the Governing Council’s assessment, substantial downside risks to the economic outlook for the euro area continue to exist in an environment of high uncertainty. They notably relate to a further intensification of the tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to the global economy, protectionist pressures and the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 2.8% in December 2011, according to Eurostat’s flash estimate, after 3.0% in the preceding three months. This decline was expected and reflects a downward base effect stemming from energy prices. Inflation rates have been at elevated levels since the end of 2010, mainly driven by higher energy and other commodity prices. Looking ahead, they are likely to stay above 2% for several months to come, before declining to below 2%. This pattern reflects the expectation that, in an environment of weaker growth in the euro area and globally, underlying cost, wage and price pressures in the euro area should remain modest.","The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to further increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years, and possible increases in commodity prices. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.","Turning to the monetary analysis, taking the appropriate medium-term perspective, the underlying pace of monetary expansion continues to be moderate. The annual growth rate of M3 decreased to 2.0% in November 2011, after 2.6% in October. As in the previous three months, monetary developments in November were affected by the heightened uncertainty in financial markets.","The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, decreased to 1.9% in November, from 3.0% in October. The annual growth rates of loans to non-financial corporations and loans to households, adjusted for loan sales and securitisation, both moderated in November, and stood at 1.8% and 2.3% respectively, with slightly negative monthly flows observed for MFI loans to non-financial corporations. Overall, despite the moderation in loan growth, the figures on lending do not so far suggest that the heightened financial market tensions led to a sizeable curtailment of credit in the euro area as a whole in the period to November. At the same time, given that credit supply effects can manifest themselves with lags, close scrutiny of credit developments is warranted in the period ahead.","The soundness of bank balance sheets, supported by the increase in capital positions, will be a key factor in facilitating an appropriate provision of credit to the economy over time. It is essential that the implementation of banks’ recapitalisation plans does not result in developments that are detrimental to the financing of economic activity in the euro area.","To sum up, incoming information broadly confirms our previous assessment. Inflation is likely to stay above 2% for several months to come, before declining to below 2%. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilisation in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon. A cross-check with the signals from the monetary analysis confirms this picture, with the underlying pace of monetary expansion continuing to be moderate.","Turning to fiscal policies, euro area governments need to do their utmost to support fiscal sustainability by correcting excessive deficits in accordance with the agreed timetables and by moving to a structural balanced budget or surplus position over the medium term. Slippages in the implementation of fiscal consolidation plans of vulnerable countries must be corrected swiftly by structural fiscal improvements. With regard to the new provisions of the EU economic governance framework that recently came into force, it is crucial that all the elements be implemented rigorously. Only ambitious policies to prevent and correct macroeconomic and fiscal imbalances will foster public confidence in the soundness of policy actions, and thus strengthen overall economic sentiment.","The Governing Council welcomes the European Council’s agreement to move to a stronger economic union, which was announced on 9 December 2011. The new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is an important contribution to ensuring the long-run sustainability of public finances in the euro area countries. The wording of the rules needs to be unambiguous and effective. The further development of the European financial stability tools should make the operation of the European Financial Stability Facility and the European Stability Mechanism more effective. The swift deployment of these tools is now urgently needed. Concerning the involvement of the private sector in financial assistance for indebted countries, we welcome the reaffirmation that the decisions taken on 21 July and 26 and 27 October 2011 concerning Greek debt are unique and exceptional.","To accompany fiscal consolidation, the Governing Council calls for the urgent implementation of bold and ambitious structural reforms. Going hand in hand, fiscal consolidation and structural reforms would strengthen confidence, growth prospects and job creation. Key reforms should be rapidly carried out to help the euro area countries to improve competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. Product market reforms should focus on fully opening up markets to increased competition. Labour market reforms should focus on removing rigidities and enhancing wage flexibility.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","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 mid-January broadly confirms our previous assessment. Inflation is likely to stay above 2% for several months to come, before declining to below 2%. Available survey indicators confirm some tentative signs of a stabilisation in economic activity at a low level around the turn of the year, but the economic outlook remains subject to high uncertainty and downside risks. The underlying pace of monetary expansion remains subdued. Looking ahead, it is essential for monetary policy to maintain price stability for the euro area as a whole. This ensures a firm anchoring of inflation expectations in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution to supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.","Through our non-standard monetary policy measures we will continue to support the functioning of the euro area financial sector, and thus the financing of the real economy. Since the first three-year longer-term refinancing operation (LTRO) was conducted in December 2011 we have approved specific national eligibility criteria and risk control measures for the temporary acceptance in a number of countries of additional credit claims as collateral in Eurosystem credit operations, which should lead to an increase in available collateral. Further details will be provided in a press release to be published today at 3.30 p.m. At the start of the current reserve maintenance period on 18 January 2012 the reserve ratio was reduced, freeing up additional collateral. As stated on previous occasions, all our non-standard measures are temporary in nature.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP growth in the fourth quarter of 2011 is likely to have been very weak. According to the survey data for the last two months, there are tentative signs of a stabilisation in economic activity at a low level. Looking ahead, we expect the euro area economy to recover very gradually in the course of 2012. The very low short-term interest rates and all the measures taken to foster the proper functioning of the euro area financial sector are lending support to the euro area economy. Moreover, stress in financial markets has diminished in response to our monetary policy measures, but also in response to the progress made towards a stronger euro area governance framework and intensified fiscal consolidation in several euro area countries. However, subdued global demand growth, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors, continue to dampen the underlying growth momentum.","This outlook is subject to downside risks. They notably relate to tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to possible adverse developments in the global economy, higher than assumed increases in commodity prices, protectionist pressures and the potential for a disorderly correction of global imbalances.","Euro area annual HICP inflation was 2.7% in January 2012, according to Eurostat’s flash estimate, unchanged from December. The average inflation rate for 2011 was 2.7%, mainly driven by higher energy and other commodity prices. Looking ahead, inflation is likely to stay above 2% for several months to come, before declining to below 2%. This pattern reflects the expectation that, in an environment of weak growth in the euro area and globally, underlying price pressures in the euro area should remain limited.","Risks to the medium-term outlook for price developments remain broadly balanced. On the upside, they relate to higher than assumed increases in indirect taxes and administered prices, as well as increases in commodity prices. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.","The monetary analysis indicates that the underlying pace of monetary expansion remains subdued. The annual growth rate of M3 decreased to 1.6% in December 2011, after 2.0% in November, reflecting a further weakening of monetary dynamics towards the end of the year.","The annual growth rates of loans to non-financial corporations and loans to households, adjusted for loan sales and securitisation, also decreased further in December, and stood at 1.2% and 1.9% respectively. The volume of MFI loans to both sectors declined in December, and this was particularly pronounced in the case of the non-financial corporate sector. In addition, there are indications that bank lending conditions tightened further, affecting loan supply in several euro area countries in late 2011. It is not yet possible to draw firm conclusions from these developments, particularly given that the impact of the first three-year LTRO on bank funding is still unfolding and may not have been fully reflected in the most recent bank lending survey. In addition, other non-standard monetary policy measures announced in December are still to be implemented. Accordingly, close scrutiny of credit developments in the period ahead is essential.","The soundness of bank balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy over time. It is essential that the implementation of banks’ recapitalisation plans does not result in developments that are detrimental to the financing of economic activity in the euro area.","To sum up, the economic analysis indicates that underlying price pressures should remain limited and risks to the medium-term outlook for price developments remain broadly balanced. A cross-check with the signals from the monetary analysis confirms this picture.","A combination of structural reforms and fiscal discipline is essential for boosting confidence and delivering a favourable environment for sustainable growth. Regarding fiscal policies, all euro area governments need to continue to do their utmost to ensure fiscal sustainability. It is essential that all countries adhere to the fiscal targets they announced for 2012. This should help to anchor expectations of sound fiscal policies and strengthen confidence. The rules guiding the design and implementation of national fiscal policies are being strengthened at the EU level as well as in the legal frameworks of several Member States. These are important steps in the right direction. With regard to structural reforms, these are key to increasing the adjustment capacity and competitiveness of euro area countries, thereby strengthening growth prospects and job creation. Notably, far-reaching and ambitious reforms should be implemented to foster competition in product markets, particularly in services sectors, while rigidities in labour markets should be reduced and wage flexibility should be enhanced.","We are now at your disposal for questions.","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 GDP contracted by 0.3% in the euro area in the fourth quarter of 2011. According to recent survey data, there are signs of a stabilisation in economic activity, albeit still at a low level. Looking ahead, we expect the euro area economy to recover gradually in the course of this year. The outlook for economic activity should be supported by foreign demand, the very low short-term interest rates in the euro area, and all the measures taken to foster the proper functioning of the euro area financial sector. However, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors, are expected to continue to dampen the underlying growth momentum.","This assessment is also reflected in the March 2012 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.5% and 0.3% in 2012 and between 0.0% and 2.2% in 2013. Compared with the December 2011 Eurosystem staff macroeconomic projections, the ranges have been shifted slightly downwards.","This outlook remains subject to downside risks. They notably relate to a renewed intensification of tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to further increases in commodity prices.","Euro area annual HICP inflation was 2.7% in February 2012, according to Eurostat’s flash estimate, slightly up from 2.6% in January. Looking ahead, inflation is now likely to stay above 2% in 2012, mainly owing to recent increases in energy prices, as well as recently announced increases in indirect taxes. On the basis of current futures prices for commodities, annual inflation rates should fall again to below 2% in early 2013. Looking further ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited.","The March 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.1% and 2.7% in 2012 and between 0.9% and 2.3% in 2013. In comparison with the December 2011 Eurosystem staff macroeconomic projections, the ranges for HICP inflation have been shifted upwards, notably the range for 2012.","Risks to projected HICP inflation rates in the coming years are seen to be still broadly balanced, with upside risks in the near term mainly stemming from higher than expected oil prices and indirect tax increases. However, downside risks continue to exist owing to weaker than expected developments in economic activity.","The monetary analysis indicates that the underlying pace of monetary expansion remains subdued. The annual growth rate of M3 was 2.5% in January 2012, up from 1.5% in December 2011. Loan growth to the private sector also remains subdued. However, its annual rate (adjusted for loan sales and securitisation) picked up slightly in January to 1.5% year on year from 1.2% in December.","The annual growth rates of loans to non-financial corporations and loans to households (adjusted for loan sales and securitisation) stood at 0.8% and 2.1% respectively in January. The volume of MFI loans to non-financial corporations declined only slightly in January, following the pronounced decline in December. By contrast, the flow of loans to households in January was positive.","Following the signs of improvement in the financial environment, it is essential for banks to strengthen their resilience further, including by retaining earnings. The soundness of banks’ balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Looking ahead, in order to deliver a favourable environment for sustainable growth and to support confidence and competitiveness, the Governing Council stresses the urgent need for governments to make further progress towards restoring sound fiscal positions and implementing the structural reform agenda. Regarding fiscal consolidation, many governments in the euro area are making progress. Continuing with comprehensive fiscal consolidation and complying with all commitments remains essential. In this respect, the 2012 European Semester should be used to enforce rigorously the reinforced fiscal surveillance mechanism. Equally important are structural reforms to increase the adjustment capacity and competitiveness of euro area countries and to strengthen growth prospects and job creation. In this area, more progress is desirable. The Governing Council strongly welcomes the European Commission’s Alert Mechanism Report on macroeconomic imbalances and expects the proposed in-depth country reviews to actively support the reform processes under way in euro area countries.","We are now at your disposal for questions.","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 March broadly confirms our previous assessment. Inflation rates are likely to stay above 2% in 2012, with upside risks prevailing. Over the policy-relevant horizon, we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Survey indicators for economic growth have broadly stabilised at low levels in the early months of 2012, and a moderate recovery in activity is expected in the course of the year. The economic outlook remains subject to downside risks.","Medium-term inflation expectations for the euro area economy must continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Over the last few months we have implemented both standard and non-standard monetary policy measures. This combination of measures has contributed to a stabilisation in the financial environment and an improvement in the transmission of our monetary policy. We need to carefully monitor further developments. It is also important to keep in mind that all our non-standard monetary policy measures are temporary in nature and that all the necessary tools are available to address upside risks to medium-term price stability in a firm and timely manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP contracted by 0.3% in the euro area in the fourth quarter of 2011. Survey data confirm a stabilisation in economic activity at a low level in early 2012. We continue to expect the euro area economy to recover gradually in the course of the year. The outlook for economic activity should be supported by foreign demand, the very low short-term interest rates in the euro area, and all the measures taken to foster the proper functioning of the euro area economy. However, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment in parts of the euro area, are expected to continue to dampen the underlying growth momentum.","Downside risks to the economic outlook prevail. They relate in particular to a renewed intensification of tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to further increases in commodity prices.","Euro area annual HICP inflation was 2.6% in March 2012, according to Eurostat’s flash estimate, after 2.7% in the previous three months. Inflation is likely to stay above 2% in 2012, mainly owing to recent increases in energy prices, as well as recently announced rises in indirect taxes. On the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. In this context, we will pay particular attention to any signs of pass-through from higher energy prices to wages, profits and general price-setting. However, looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited.","Risks to the outlook for HICP inflation rates in the coming years are still seen to be broadly balanced, with upside risks in the near term mainly stemming from higher than expected oil prices and indirect tax increases. Downside risks continue to exist owing to weaker than expected developments in economic activity.","The monetary analysis indicates that the underlying pace of monetary expansion has remained subdued. The annual growth rate of M3 was 2.8% in February 2012, compared with 2.5% in January. In both January and February we observed a strengthening in the deposit base of banks. Annual loan growth to the private sector has remained subdued, with the rate (adjusted for loan sales and securitisation) moderating in February to 1.1% year on year, from 1.5% in January.","The annual growth rates of loans to non-financial corporations and loans to households (adjusted for loan sales and securitisation) stood at 0.6% and 1.8% respectively in February. The volume of MFI loans to non-financial corporations and households remained practically unchanged compared with the previous month.","Money and credit data up to February confirm a broad stabilisation of financial conditions and thereby the avoidance of an abrupt and disorderly adjustment in the balance sheets of credit institutions, as intended by our measures. Funding conditions for banks have generally improved, and there has been increased issuance activity and a re-opening of some segments of funding markets. The demand for credit remains weak in the light of still subdued economic activity and the ongoing process of balance sheet adjustment in non-financial sectors. The full supportive impact of the Eurosystem’s non-standard measures will need time to unfold and to have a positive effect on the growth of loans when demand recovers. In this context, it should be noted that the second three-year longer-term refinancing operation was only settled on 1 March 2012.","Following the stabilisation in the financial environment, it is essential for banks to strengthen their resilience further, including by retaining earnings. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","In order to support confidence, sustainable growth and employment, the Governing Council calls upon governments to restore sound fiscal positions and implement strong structural reforms. Commitments under the Stability and Growth Pact need to be fully honoured and weaknesses in competitiveness forcefully addressed. National policy-makers need to fully meet their responsibilities to ensure fiscal sustainability, to increase the adjustment capacity of product and labour markets, to enhance productivity and competitiveness, and to ensure the soundness of their financial system. In particular, countries which have suffered losses in cost competitiveness need to ensure sufficient wage adjustment and foster productivity growth.","Let me conclude by recalling that the single monetary policy naturally focuses on maintaining medium-term price stability for the euro area as a whole. It is up to national policy-makers to foster domestic developments which support the competitiveness of their economies. Both prudent fiscal policies and competitive and flexible product and labour markets are of crucial importance for the functioning of the euro area economy.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Fernández Ordóñez for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Inflation rates are likely to stay above 2% in 2012. However, over the policy-relevant horizon, we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Available indicators for the first quarter remain consistent with a stabilisation in economic activity at a low level. Latest survey indicators for the euro area highlight prevailing uncertainty. Looking ahead, economic activity is expected to recover gradually over the course of the year. At the same time, as we said previously, the economic outlook continues to be subject to downside risks.","Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Over the last few months we have implemented both standard and non-standard monetary policy measures. This combination of measures has helped both the financial environment and the transmission of our monetary policy. Further developments will be closely monitored, keeping in mind that all our non-standard monetary policy measures are temporary in nature and that we maintain our full capacity to ensure medium-term price stability by acting in a firm and timely manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Available indicators for the first quarter remain consistent with a stabilisation in economic activity at a low level. Latest signals from euro area survey data highlight prevailing uncertainty. At the same time, there are indications that the global recovery is proceeding. Looking beyond the short term, we continue to expect the euro area economy to recover gradually in the course of the year, supported by foreign demand, the very low short-term interest rates in the euro area, and all the measures taken to foster the proper functioning of the euro area economy. However, remaining tensions in some euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment, are expected to continue to dampen the underlying growth momentum.","As we said previously, this economic outlook continues to be subject to downside risks, relating in particular to an intensification of tensions in euro area debt markets and their potential spillover to the euro area real economy, as well as to further increases in commodity prices.","Euro area annual HICP inflation was 2.6% in April 2012, according to Eurostat’s flash estimate, after 2.7% in the previous four months. Inflation is likely to stay above 2% in 2012, mainly owing to increases in energy prices, as well as to rises in indirect taxes. On the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. In this context, we will pay particular attention to any signs of pass-through from higher energy prices to wages, profits and general price-setting. However, looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited.","Risks to the outlook for HICP inflation rates in the coming years are still seen to be broadly balanced. Upside risks pertain to higher than expected commodity prices and indirect tax increases, while downside risks relate to weaker than expected developments in economic activity.","The monetary analysis indicates that the underlying pace of monetary expansion has remained subdued, with somewhat higher growth rates in the past few months. The annual growth rate of M3 was 3.2% in March 2012, compared with 2.8% in February. Since January we have observed a strengthening in the deposit base of banks.","The annual growth rates of loans to non-financial corporations and loans to households (adjusted for loan sales and securitisation) stood at 0.5% and 1.7% respectively in March, both slightly lower than in February. The volume of MFI loans to non-financial corporations and households remained practically unchanged compared with the previous month.","Money and credit data up to March confirm a broad stabilisation of financial conditions and thereby, as intended by our measures, the avoidance of an abrupt and disorderly adjustment in the balance sheets of credit institutions. In this context, the April bank lending survey indicates that the net tightening of credit standards by euro area banks declined substantially in the first quarter of 2012 as compared with late 2011, for both loans to non-financial corporations and loans to households, also on account of improvements in funding conditions for banks. As also indicated in the bank lending survey, the demand for credit remained subdued in the first quarter of 2012, reflecting weak economic activity and the ongoing process of balance sheet adjustment in non-financial sectors. The full supportive impact of the Eurosystem’s non-standard measures will need time to unfold and to have a positive effect on the growth of loans when demand recovers. In this context, it should be noted that the second three-year longer-term refinancing operation was only settled on 1 March 2012.","Looking ahead, it is essential for banks to strengthen their resilience further, including by retaining earnings. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","It is of utmost importance to ensure fiscal sustainability and sustainable growth in the euro area. Most euro area countries made good progress in terms of fiscal consolidation in 2011. While the necessary comprehensive fiscal adjustment is weighing on near-term economic growth, its successful implementation will contribute to the sustainability of public finances and thereby to the lowering of sovereign risk premia. In an environment of enhanced confidence in fiscal balances, private sector activity should also be fostered, supporting private investment and medium-term growth.","At the same time, together with fiscal consolidation, growth and growth potential in the euro area need to be enhanced by decisive structural reforms. In this context, facilitating entrepreneurial activities, the start-up of new firms and job creation is crucial. Policies aimed at enhancing competition in product markets and increasing the wage and employment adjustment capacity of firms will foster innovation, promote job creation and boost longer-term growth prospects. Reforms in these areas are particularly important for countries which have suffered significant losses in cost competitiveness and need to stimulate productivity and improve trade performance.","In this context, let me make a few remarks on the adjustment process within the euro area. As we know from the experience of other large currency areas, regional divergences in economic developments are a normal feature. However, considerable imbalances have accumulated in the last decade in several euro area countries and they are now in the process of being corrected.","As concerns the monetary policy stance of the ECB, it has to be focused on the euro area. Our primary objective remains to maintain price stability over the medium term. This is the best contribution of monetary policy to fostering growth and job creation in the euro area.","Addressing divergences among individual euro area countries is the task of national governments. They must undertake determined policy actions to address major imbalances and vulnerabilities in the fiscal, financial and structural domains. We note that progress is being made in many countries, but several governments need to be more ambitious. Ensuring sound fiscal balances, financial stability and competitiveness in all euro area countries is in our common interest.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. While inflation rates are likely to stay above 2% for the remainder of 2012, over the policy-relevant horizon we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment, giving rise to increased downside risks to the economic outlook.","In previous months we have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. Today, we have decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 12th maintenance period of 2012 on 15 January 2013. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, the Governing Council has decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until the end of 2012 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. Keeping in mind that all our non-standard monetary policy measures are temporary in nature, we will monitor further developments closely and ensure medium-term price stability for the euro area by acting in a firm and timely manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012. Available indicators for the second quarter of the year point to a weakening of growth and highlight prevailing uncertainty. Looking beyond the short term, we continue to expect the euro area economy to recover gradually. However, ongoing tensions in some euro area sovereign debt markets and their impact on credit conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to continue to dampen the underlying growth momentum.","The June 2012 Eurosystem staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.5% and 0.3% for 2012 and between 0.0% and 2.0% for 2013. Compared with the March 2012 ECB staff macroeconomic projections, the range for 2012 remains unchanged, while there is a slight narrowing of the range for 2013.","In the Governing Council’s assessment, the economic outlook for the euro area is subject to increased downside risks relating, in particular, to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possibly renewed increases in commodity prices over the medium term.","Euro area annual HICP inflation was 2.4% in May 2012, according to Eurostat’s flash estimate, after 2.6% in the previous month. Inflation is likely to stay above 2% for the remainder of the year, mainly owing to developments in energy prices and indirect taxes. However, on the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. Looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain subdued.","The June 2012 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.3% and 2.5% for 2012 and between 1.0% and 2.2% for 2013. In comparison with the March 2012 ECB staff macroeconomic projections, there is a narrowing of the projection ranges for 2012 and 2013.","The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected commodity prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area.","The monetary analysis indicates that the underlying pace of monetary expansion remained subdued in the first four months of 2012. The annual growth rate of M3 fell to 2.5% in April, down from 3.1% in March, following strong inflows into money in the first quarter of the year. The moderation in annual M3 growth in April was mainly driven by outflows from overnight deposits belonging to non-monetary financial intermediaries (which includes entities like central counterparties, investment funds and securitisation vehicles).","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.8% in April (from 1.2% in March), owing to negative loan flows to non-monetary financial intermediaries. At the same time, monthly flows of loans to non-financial corporations and households were moderately positive in April and the annual rates of growth (adjusted for loan sales and securitisation) stood at 0.7% and 1.5% respectively in April, broadly unchanged from March.","Money and credit data up to April provide evidence that, as intended by our policy measures, an abrupt and disorderly adjustment in the balance sheets of credit institutions has not materialised. Given the current cyclical situation and the ongoing adjustment in the balance sheets of households and enterprises, subdued credit demand is likely to prevail in the period ahead.","Looking ahead, it is essential for banks to continue to strengthen their resilience further. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Let me now make a few remarks relating to fiscal and economic policies. Significant progress has been achieved with fiscal consolidation over recent years. It is of crucial importance to continue with the efforts to restore sound fiscal positions and to regain competitiveness. These are pre-conditions for stable economic growth. As a natural complement, the implementation of the new macroeconomic surveillance framework under the EU semester is necessary. In several euro area countries, excessive imbalances exist and need to be corrected. To this end, comprehensive product, labour and financial sector reforms will help foster sustainable growth. Competition should be strengthened in product markets, not least by the completion of the Single Market, and wages should adjust in a flexible manner, reflecting labour market conditions and productivity. These growth-enhancing reforms would accelerate the necessary adjustment process and enhance job creation.","Finally, the Governing Council very much welcomes leaders at the last European Council meeting agreeing to step up their reflections on the long-term vision for Economic and Monetary Union. The Governing Council considers this a highly important step.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to cut the key ECB interest rates by 25 basis points. Inflationary pressure over the policy-relevant horizon has been dampened further as some of the previously identified downside risks to the euro area growth outlook have materialised. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.","We have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. All our non-standard monetary policy measures are temporary in nature and we maintain our full capacity to ensure medium-term price stability by acting in a firm and timely manner. Let me also remind you of the decision taken by the Governing Council on 22 June 2012 concerning further measures to increase collateral availability for counterparties.","Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012, following a decline of 0.3% in the previous quarter. Indicators for the second quarter of 2012 point to a renewed weakening of economic growth and heightened uncertainty. Looking beyond the short term we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on credit conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum.","The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to a renewed increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possibly renewed increases in energy prices over the medium term.","Euro area annual HICP inflation was 2.4% in June 2012, according to Eurostat’s flash estimate, unchanged from the previous month. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be again below 2% in 2013. Over the policy‑relevant horizon, in an environment of modest growth in the euro area and well‑anchored long-term inflation expectations, underlying price pressures should remain moderate.","Taking into account today’s decisions, risks to the outlook for price developments continue to be broadly balanced over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term.","Turning to the monetary analysis, the underlying pace of monetary expansion has remained subdued, with short-term developments displaying some volatility. The increase in the annual growth rate of M3 to 2.9% in May, up from 2.5% in April and close to the 3.0% observed in March, mainly reflected a reversal of the outflows in April from overnight deposits belonging to non-monetary financial intermediaries (particularly investment funds). In addition to an increased preference for deposits with shorter maturities, these factors have also shaped M1 developments, with the annual growth rate increasing from 1.8% in April to 3.3% in May.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.4% in May (from 0.8% in April). Annual growth rates for loans to both non‑financial corporations and households (adjusted for loan sales and securitisation) also decreased in May, to 0.2% and 1.3% respectively, with negative monthly loan flows to non-financial corporations. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion, and the ongoing adjustment in the balance sheets of households and enterprises which weigh on credit demand.","Looking ahead, it is essential for banks to continue to strengthen their resilience where it is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, taking into account today’s decisions, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Let me now make a few remarks relating to other policies. We welcome the European Council conclusions of 29 June 2012 to take action to address financial market tensions, restore confidence and revive growth. We agree that Economic and Monetary Union needs to be put on a more solid basis for the future and that sustainable growth, sound public finances and structural reforms to boost competitiveness remain key economic priorities. We welcome the decision to develop a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union. We also welcome the euro area summit initiative towards a single supervisory mechanism, the possibility – with appropriate conditionality – to recapitalise banks directly, and the use of existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets. Finally, the ECB is ready to serve as an agent to the EFSF/ESM in conducting market operations.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged, following the decrease of 25 basis points in July. As we said a month ago, inflation should decline further in the course of 2012 and be below 2% again in 2013. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A further intensification of financial market tensions has the potential to affect the balance of risks for both growth and inflation on the downside.","The Governing Council extensively discussed the policy options to address the severe malfunctioning in the price formation process in the bond markets of euro area countries. Exceptionally high risk premia are observed in government bond prices in several countries and financial fragmentation hinders the effective working of monetary policy. Risk premia that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner. The euro is irreversible.","In order to create the fundamental conditions for such risk premia to disappear, policy-makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination. As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines.","The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures.","Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012, following a decline of 0.3% in the previous quarter. Economic indicators point to weak economic activity in the second quarter of 2012 and at the beginning of the third quarter, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually, with growth momentum being further dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum, which is also affected by the ongoing global slowdown.","The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term.","Euro area annual HICP inflation was 2.4% in July 2012, according to Eurostat’s flash estimate, unchanged from the previous month. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be below 2% again in 2013. Over the policy‑relevant horizon, in an environment of modest growth in the euro area and well‑anchored long-term inflation expectations, underlying price pressures should remain moderate.","Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area, in particular resulting from a further intensification of financial market tensions. Such intensification has the potential to affect the balance of risks on the downside.","Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 stood at 3.2% in June 2012, slightly higher than the 3.1% observed in the previous month and close to the rate observed at the end of the first quarter. Overall, inflows into broad money in the second quarter were weak. Annual growth in M1 increased further to 3.5% in June, in line with the increased preference of investors for liquid instruments in an environment of low interest rates and high uncertainty.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.3% in June (from 0.5% in May). As net redemptions of loans to non-financial corporations and households (both adjusted for loan sales and securitisation) were observed in June, the annual growth rates for loans to both non‑financial corporations and households (adjusted for loan sales and securitisation) decreased further in June, to -0.3% and 1.1% respectively. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. A considerable contribution of demand factors to weak MFI loan growth is confirmed by the euro area bank lending survey for the second quarter of 2012. This survey also shows that the net tightening of banks’ credit standards at the euro area level was broadly stable in the second quarter of 2012, as compared with the previous quarter, for loans to both enterprises and households.","Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","While significant progress has been achieved with fiscal consolidation over recent years, further decisive and urgent steps need to be taken to improve competitiveness. From 2009 to 2011, euro area countries, on average, reduced the deficit-to-GDP ratio by 2.3 percentage points, and the primary deficit improved by about 2½ percentage points. Fiscal adjustment in the euro area is continuing in 2012, and it is indeed crucial that efforts are maintained to restore sound fiscal positions. At the same time, structural reforms are as essential as fiscal consolidation efforts and the measures to repair the financial sector. Some progress has also been made in this area. For example, unit labour costs and current account developments have started to undergo a correction process in most of the countries strongly affected by the crisis. However, further reform measures need to be implemented swiftly and decisively. Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth. It is now crucial that Member States implement their country-specific recommendations with determination.","We are now at your disposal for questions.","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 President of the Eurogroup, Prime Minister Juncker, and by the Commission Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2% throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Economic growth in the euro area is expected to remain weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation.","It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area. OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.","In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building. At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective. Details of the Outright Monetary Transactions are described in a separate press release.","Furthermore, the Governing Council took decisions with a view to ensuring the availability of adequate collateral in Eurosystem refinancing operations. The details of these measures are also elaborated in a separate press release.","Let me now explain our assessment in greater detail, starting with the economic analysis. Recently published statistics indicate that euro area real GDP contracted by 0.2%, quarter on quarter, in the second quarter of 2012, following zero growth in the previous quarter. Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.","The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.6% and -0.2% for 2012 and between -0.4% and 1.4% for 2013. Compared with the June 2012 Eurosystem staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.","The risks surrounding the economic outlook for the euro area are assessed to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. These risks should be contained by effective action by all euro area policy-makers.","Euro area annual HICP inflation was 2.6% in August 2012, according to Eurostat’s flash estimate, compared with 2.4% in the previous month. This increase is mainly due to renewed increases in euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could turn out somewhat higher than expected a few months ago, but they should decline to below 2% again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.","The September 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.4% and 2.6% for 2012 and between 1.3% and 2.5% for 2013. These projection ranges are somewhat higher than those contained in the June 2012 Eurosystem staff macroeconomic projections.","Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, particularly resulting from a further intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all euro area policy-makers, such intensification has the potential to affect the balance of risks on the downside.","Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 increased to 3.8% in July 2012, up from 3.2% in June. The rise in M3 growth was mainly attributable to a higher preference for liquidity, as reflected in the further increase in the annual growth rate of the narrow monetary aggregate M1 to 4.5% in July, from 3.5% in June.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained weak at 0.5% in July (after 0.3% in June). Annual growth in MFI loans to both non-financial corporations and households remained subdued, at -0.2% and 1.1% respectively (both adjusted for loan sales and securitisation). To a large extent, subdued loan growth reflects a weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks continue to weigh on credit supply.","Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Although good progress is being made, the need for structural and fiscal adjustment remains significant in many European countries. On the structural side, further swift and decisive product and labour market reforms are required across the euro area to improve competitiveness, increase adjustment capacities and achieve higher sustainable growth rates. These structural reforms will also complement and support fiscal consolidation and debt sustainability. On the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. In this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. Finally, pushing ahead with European institution-building with great determination is essential.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Kranjec for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2% throughout 2012, but then to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Economic growth in the euro area is expected to remain weak, with ongoing tensions in some euro area financial markets and high uncertainty still weighing on confidence and sentiment. Our decisions as regards Outright Monetary Transactions (OMTs) have helped to alleviate such tensions over the past few weeks, thereby reducing concerns about the materialisation of destructive scenarios. It is now essential that governments continue to implement the necessary steps to reduce both fiscal and structural imbalances and proceed with financial sector restructuring measures.","The Governing Council remains firmly committed to preserving the singleness of its monetary policy and to ensuring the proper transmission of the policy stance to the real economy throughout the euro area. OMTs will enable us to provide, under appropriate conditions, a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat again what I have said in past months: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.","We are ready to undertake OMTs, once all the prerequisites are in place. As we said last month, the Governing Council will consider entering into OMTs to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected. We would exit from OMTs once their objectives have been achieved or when there is a failure to comply with a programme. OMTs would not take place while a given programme is under review and would resume after the review period once programme compliance has been assured.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP contracted by 0.2%, quarter on quarter, in the second quarter of 2012, following flat growth in the previous quarter. Economic indicators, in particular survey results, confirm the continuation of weak economic activity in the third quarter of 2012, in an environment characterised by high uncertainty. We expect the euro area economy to remain weak in the near term and to recover only very gradually thereafter. The growth momentum is supported by our standard and non-standard monetary policy measures, but is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.","The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to ongoing tensions in several euro area financial markets and the potential spillover to the euro area real economy. These risks should be contained by effective action by all policy-makers in the euro area.","Euro area annual HICP inflation was 2.7% in September 2012, according to Eurostat’s flash estimate, compared with 2.6% in the previous month. This is higher than expected and mainly reflects past increases in indirect taxes and euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could remain at elevated levels, before declining to below 2% again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate. Current levels of inflation should thus remain transitory and not give rise to second-round effects. We will continue to monitor closely further developments in costs, wages and prices.","Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, in the event of a renewed intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all policy-makers in the euro area, such intensification has the potential to affect the balance of risks on the downside.","Turning to the monetary analysis, recent data confirm the subdued underlying pace of monetary expansion. In August the annual growth rate of M3 decreased to 2.9%, from 3.6% in July. While this decline was mainly due to a base effect, monthly inflows were also relatively contained. Conversely, strong monthly inflows into overnight deposits contributed to a further increase in the annual rate of growth of M1 to 5.1% in August, compared with 4.5% in July. This increase reflects a continuing high preference for liquidity in an environment of low interest rates and high uncertainty.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined in August to -0.2% (from 0.1% in July), reflecting a decrease in the annual rate of growth of loans to non-financial corporations to -0.5%, from -0.2% in July. By contrast, the annual growth of loans to households remained unchanged, at 1.0%, in August. To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. At the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply.","The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the non-financial sectors in the different countries of the euro area. It is thus essential that the resilience of banks continues to be strengthened where needed.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Other economic policy areas need to make substantial contributions to ensure a further stabilisation of financial markets and an improvement in the outlook for growth. As regards fiscal policies, euro area countries are progressing with consolidation. It is crucial that efforts are maintained to restore sound fiscal positions, in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. A rapid implementation of the fiscal compact will also play a major role in strengthening confidence in the soundness of public finances. At the same time, structural reforms are as essential as fiscal consolidation efforts and measures to improve the functioning of the financial sector. In the countries most strongly affected by the crisis, noticeable progress is being made in the correction of unit labour cost and current account developments. Decisive product and labour market reforms will further improve the competitiveness of these countries and their capacity to adjust.","Finally, it is essential to push ahead with European institution-building. The ECB welcomes the Commission proposal of 12 September 2012 for a single supervisory mechanism (SSM) involving the ECB, to be established through a Council regulation on the basis of Article 127(6) of the Treaty. The Governing Council considers an SSM to be one of the fundamental pillars of a financial union and one of the main building blocks towards a genuine Economic and Monetary Union. We will formally issue a legal opinion in which we will, in particular, take into account the following principles: a clear and robust separation between supervisory decision-making and monetary policy; appropriate accountability channels; a decentralisation of tasks within the SSM; an effective supervisory framework ensuring coherent oversight of the euro area banking system; and full compatibility with the Single Market framework, including the role and prerogatives of the European Banking Authority. As the Commission proposal sets out an ambitious transition schedule towards the SSM, the ECB has started preparatory work so as to be able to implement the provisions of the Council regulation as soon as it enters into force.","We are now at your disposal for questions.","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. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are likely to remain above 2% for the remainder of 2012. They are expected to fall below that level in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Economic activity in the euro area is expected to remain weak, although it continues to be supported by our monetary policy stance and financial market confidence has visibly improved on the back of our decisions as regards Outright Monetary Transactions (OMTs). At the same time, the necessary process of balance sheet adjustment in large parts of the financial and non-financial sectors as well as high uncertainty continue to weigh on the economic outlook. It is essential for governments to support confidence by forcefully implementing the necessary steps to reduce both fiscal and structural imbalances and to proceed with financial sector restructuring.","The Governing Council remains firmly committed to preserving the singleness of its monetary policy and to ensuring the proper transmission of the policy stance to the real economy throughout the euro area. As we said before, we are ready to undertake OMTs, which will help to avoid extreme scenarios, thereby clearly reducing concerns about the materialisation of destructive forces.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP contracted by 0.2%, quarter on quarter, in the second quarter of 2012, following flat growth in the previous quarter. As regards the second half of 2012, the available indicators continue to signal weak activity. While industrial production data showed some resilience in July/August, most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year.","Looking ahead to next year, the growth momentum is expected to remain weak. It continues to be supported by our standard and non-standard monetary policy measures, but the necessary process of balance sheet adjustment in the financial and non-financial sectors and an uneven global recovery will continue to dampen the pace of recovery. The risks surrounding the economic outlook for the euro area remain on the downside.","Euro area annual HICP inflation was 2.5% in October 2012, according to Eurostat’s flash estimate, compared with 2.6% in September and August. On the basis of current futures prices for oil, inflation rates could remain at elevated levels, before declining to below 2% again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate. Current levels of inflation should thus remain transitory. We will continue to monitor closely further developments in costs, wages and prices.","Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, in the event of a renewed intensification of financial market tensions, and its effects on the domestic components of inflation.","Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. In September the annual growth rate of M3 decreased to 2.7%, from 2.8% in August. Monthly outflows from M3 reflected to some extent the reversal of portfolio shifts into the most liquid components of M3. Accordingly, the annual rate of growth of M1 declined to 5.0% in September, from 5.2% in August. At the same time, we have observed a strengthening in the deposit base of banks in some stressed countries, amid improvements in investors’ confidence in the euro area.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined further to -0.4% in September, from -0.2% in August. This development was mainly due to further net redemptions in loans to non-financial corporations, which led to an annual rate of decline in these loans of -1.2%, compared with -0.5% in August. The annual growth in MFI lending to households remained unchanged at 0.9% in September. To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. At the same time, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks restrict credit supply. The recent results of the bank lending survey for the third quarter of 2012 underpin this assessment.","The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels, thereby contributing to an adequate transmission of monetary policy to the financing conditions of the non-financial sectors in the individual countries of the euro area. It is thus essential that the resilience of banks continues to be strengthened where needed.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Other economic policy areas need to make substantial contributions to ensure a further stabilisation of financial markets and an improvement in the outlook for growth. Structural reforms are crucial to boost the growth potential of euro area countries and to enhance employment. Policy action is also necessary to increase the adjustment capacity of euro area economies in order to complete the ongoing process of unwinding existing imbalances. Visible progress is being made in the correction of unit labour costs and current account imbalances. However, further measures to enhance labour market flexibility and labour mobility across the euro area are warranted. Such structural measures would also complement and support fiscal consolidation and debt sustainability. As regards fiscal policies, there is clear evidence that consolidation efforts in euro area countries are bearing fruit. It is crucial that efforts are maintained to restore sound fiscal positions, in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. Full compliance with the reinforced EU fiscal and governance framework, including the rapid implementation of the fiscal compact, will send a strong signal to markets and strengthen confidence in the soundness of public finances.","The Governing Council takes note of the European Council conclusions on completing Economic and Monetary Union, adopted on 18 October 2012. In the context of measures to achieve an integrated financial framework, it welcomes in particular the objective of agreeing on the legislative framework for a Single Supervisory Mechanism (SSM) by 1 January 2013 with a view to the SSM becoming operational in the course of 2013.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, HICP inflation rates have been elevated for some time. More recently they have declined, as anticipated, and are expected to fall below 2% in 2013. Over the policy-relevant horizon, inflation rates should remain in line with price stability. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. The economic weakness in the euro area is expected to extend into next year. In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover, as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through to the economy. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.","Today, we have also decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2013 on 9 July 2013. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2013. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. The rates in the three-month longer-term refinancing operations, to be allotted until June 2013, will be fixed at the average rate of the MROs over the life of the respective longer-term refinancing operation.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2%, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1% in the third quarter. Available statistics and survey indicators continue to signal further weakness in activity in the last quarter of the year, although more recently some indicators have stabilised at low levels and financial market confidence has improved further. Over the shorter term, weak activity is expected to extend into next year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. A gradual recovery should start later in 2013 as our accommodative monetary policy stance and significant improvement in financial market confidence work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth.","This assessment is reflected in the December 2012 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6% and -0.4% for 2012, between -0.9% and 0.3% for 2013 and between 0.2% and 2.2% for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.","The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.","According to Eurostat’s flash estimate, euro area annual HICP inflation fell to 2.2% in November 2012, down from 2.5% in October and from 2.6% in the two previous months. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2% next year. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.","This assessment is also reflected in the December 2012 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation of 2.5% for 2012, between 1.1% and 2.1% for 2013 and between 0.6% and 2.2% for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the projection range for 2013 has been revised downwards.","In the Governing Council’s assessment, risks to the outlook for price developments are seen as broadly balanced, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices.","Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued, taking into account developments over several months. Most recently, the annual growth rate of M3 increased to 3.9% in October, from 2.6% in September, while M1 growth accelerated to 6.4% from 5.0% over the same period. These developments are partly due to a specific transaction leading to an increase in overnight deposits belonging to the non-monetary financial sector. At the same time, deposits from households and non-financial corporations also rose in October. Overall, more observations are needed to distinguish between shorter-term volatility and more lasting factors.","Unlike in the case of monetary developments, there has been little change in credit growth. The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained at -0.4% in October, unchanged from September. But this development reflects further net redemptions in loans to non-financial corporations, which led to an annual rate of decline in these loans of -1.5%, down from ‑1.2% in September. The annual growth in MFI lending to households remained unchanged at 0.8% in October. To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, capital constraints, risk perception and the segmentation of financial markets restrict credit supply.","In order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential to continue strengthening the resilience of banks where needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels. Decisive steps for establishing an integrated financial framework will help to accomplish this objective. A single supervisory mechanism (SSM) is one of the main building blocks. It is a crucial move towards re-integrating the banking system.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Further economic policy measures and progress in the reform of European governance should help to support financial market sentiment and improve the outlook for economic growth. In this context, the Governing Council looks forward to the roadmap towards genuine Economic and Monetary Union to be decided at the European Council meeting on 13-14 December 2012. Initiatives to accelerate structural reforms that help restore competitiveness are particularly important to revive the growth potential of euro area countries and to increase employment. More generally, all euro area countries must ensure that their product and labour markets possess the adjustment capacity required for their smooth and effective functioning within a monetary union. Finally, continued fiscal consolidation is expected to restore sound fiscal positions, in line with the commitments under the Stability and Growth Pact and the 2012 European Semester recommendations. Significant progress has already been made in reducing domestic and external imbalances and in improving competitiveness. Continued policy actions on the European, structural and fiscal reform fronts should be mutually reinforcing and send a strong signal to markets.","We are now at your disposal for questions.","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. 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. HICP inflation rates have declined over recent months, as anticipated, and are expected to fall below 2% this year. Over the policy-relevant horizon, inflationary pressures should remain contained. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. The economic weakness in the euro area is expected to extend into 2013. In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover. In particular, our accommodative monetary policy stance, together with significantly improved financial market confidence and reduced fragmentation, should work its way through to the economy, and global demand should strengthen. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2%, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1% in the third quarter. Available statistics and survey indicators continue to signal further weakness in activity, which is expected to extend into this year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. However, more recently several conjunctural indicators have broadly stabilised, albeit at low levels, and financial market confidence has improved significantly. Later in 2013 a gradual recovery should start, as our accommodative monetary policy stance, the significant improvement in financial market confidence and reduced fragmentation work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth.","The risks surrounding the economic outlook for the euro area remain on the downside. They are mainly related to slow implementation of structural reforms in the euro area, geopolitical issues and imbalances in major industrialised countries. These factors have the potential to dampen sentiment for longer than currently assumed and delay further the recovery of private investment, employment and consumption.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.2% in December 2012, unchanged from November and down from 2.5% in October and 2.6% in August and September. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2% this year. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain contained.","Risks to the outlook for price developments are seen as broadly balanced over the medium term, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices.","Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 remained broadly unchanged at 3.8% in November 2012, after 3.9% in October. M3 growth continued to be driven by a preference for liquid assets, as M1 growth increased further to 6.7% in November, from 6.5% in October, reflecting inflows into overnight deposits from households and non-financial corporations. Following our non-standard monetary policy measures and action by other policy-makers, a broadly based strengthening in the deposit base of MFIs in a number of stressed countries was observed. This allowed several MFIs to reduce further their reliance on Eurosystem funding and helped to reduce segmentation in financial markets. M3 growth was also supported by an inflow of capital into the euro area, as reflected in the strong increase in the net external asset position of MFIs.","There has been little change in credit growth, which remained weak in November. The annual rate of decline in loans to the private sector (adjusted for loan sales and securitisation) remained at -0.5% in November. This development reflects further net redemptions in loans to non-financial corporations. Net redemptions, however, were less pronounced than in previous months, amounting to €4 billion in November, after €7 billion in October and €21 billion in September. The annual rate of decline in loans to non-financial corporations was -1.4% in November, after ‑1.5% in October. The annual growth in MFI lending to households also remained broadly unchanged at 0.7% in November. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment in the balance sheets of households and enterprises.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential to continue strengthening the resilience of banks where needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels. Decisive steps for establishing an integrated financial framework will help to accomplish this objective. The future single supervisory mechanism (SSM) is one of the main building blocks. It is a crucial move towards re-integrating the banking system.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","Other economic policy areas will need to make further contributions to ensure a firm stabilisation of financial markets and an improvement in the outlook for growth. Further structural reforms should be rapidly implemented to make the euro area a more flexible, dynamic and competitive economy. In particular, product market reforms to increase competition and competitiveness are essential, accompanied by measures to improve the functioning of labour markets. Such reforms will boost the euro area’s growth potential and employment and improve the adjustment capacities of the euro area countries. They will also add further momentum to the progress being made with regard to unit labour costs and current account imbalances. As regards fiscal policies, the recent significant decline in sovereign bond yields should be bolstered by further progress in fiscal consolidation in line with the commitments under the Stability and Growth Pact.","We are now at your disposal for questions.","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. HICP inflation rates have declined further, as anticipated, and are expected to fall below 2% in the coming months. Over the policy-relevant horizon, inflationary pressures should remain contained. The underlying pace of monetary expansion continues to be subdued. Medium to longer-term inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Overall, this allows our monetary policy stance to remain accommodative. The economic weakness in the euro area is expected to prevail in the early part of 2013. In particular, necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover, supported by our accommodative monetary policy stance, the improvement in financial market confidence and reduced fragmentation, as well as a strengthening of global demand. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.","With regard to the liquidity situation of banks, counterparties have so far repaid €140.6 billion of the €489.2 billion obtained in the first of the two three-year longer-term refinancing operations (LTROs) settled in December 2011 and March 2012. This reflects the improvement in financial market confidence. Repayments are provided for in the modalities of the three-year LTROs and are at the discretion of the counterparties, who must appropriately assess their funding situation, their ability to provide new loans to the economy and their resilience to shocks. We will closely monitor conditions in the money market and their potential impact on the stance of monetary policy, which will remain accommodative with the full allotment mode of liquidity provision.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP declined by 0.1%, quarter on quarter, in the third quarter of 2012, following a contraction of 0.2% in the second quarter. Available data continue to signal further weakness in activity in the fourth quarter and at the beginning of 2013. This weakness reflects the adverse impact of low consumer and investor sentiment on domestic expenditure, as well as subdued foreign demand. However, financial market sentiment has improved and the latest survey indicators confirm earlier evidence of a stabilisation in business and consumer confidence, albeit at low levels. Later in 2013 a gradual recovery should start, with domestic demand being supported by our accommodative monetary policy stance, the improvement in financial market confidence and reduced fragmentation, and export growth benefiting from a strengthening of global demand.","The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate to the possibility of weaker than expected domestic demand and exports, slow implementation of structural reforms in the euro area, as well as geopolitical issues and imbalances in major industrialised countries which could both have an impact on developments in global commodities and financial markets. These factors have the potential to dampen the ongoing improvement in confidence and thereby delay the recovery.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.0% in January 2013, down from 2.2% in November and December and from 2.5% in October. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2% in the coming months. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain contained.","Risks to the outlook for price developments continue to be seen as broadly balanced over the medium term, with upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity and, more recently, the appreciation of the euro exchange rate.","Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 decreased to 3.3% in December 2012, from 3.8% in November. Shifts from overnight deposits to short-term time deposits led to a decrease in the annual rate of growth of M1, which declined to 6.2% in December, from 6.7% in November, and outflows from marketable instruments dampened overall M3 growth. A further strengthening in the deposit base of MFIs in a number of stressed countries took place in December, in combination with further capital inflows into the euro area, both of which continued to reduce fragmentation.","The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained negative in December. This mainly reflected ongoing negative annual growth of loans to non-financial corporations, which was -1.3% in December after -1.5% in November. However, annual growth in MFI loans to households remained broadly unchanged at 0.7% in December. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment in the balance sheets of the financial and non-financial sectors. In line with these developments, the bank lending survey for the fourth quarter of 2012 confirms the weakness in credit demand and the continued effect of credit risk considerations on the tightening of credit standards. At the same time, the survey confirms the positive impact of Eurosystem measures on banks’ overall funding and liquidity situation. In particular, banks reported improvements across all funding categories in the fourth quarter.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential to continue strengthening the resilience of banks where needed. Decisive steps for establishing an integrated financial framework will help to accomplish this objective. The future single supervisory mechanism (SSM) is one of the main building blocks. It is a crucial move towards re-integrating the banking system.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","As regards other policy areas, structural reforms and fiscal adjustment can complement each other, thereby improving the outlook for job creation, economic growth and debt sustainability. Past policy action is bearing fruit, in terms of both the unwinding of existing fiscal imbalances and the reduction of current account deficits. In particular, in several countries with particular adjustment needs, contained growth in unit labour costs signals greater price competitiveness and exports are performing better. Governments should build on the progress achieved in fiscal consolidation, strengthen competition in product markets and continue with labour market reforms. This would boost the euro area’s growth potential, reduce high structural unemployment and improve the adjustment capacities of the euro area countries.","We are now at your disposal for questions.","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. HICP inflation rates have declined further, as anticipated, and fell below 2% in February. Over the policy-relevant horizon, inflationary pressures should remain contained. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Overall, this will allow our monetary policy stance to remain accommodative. Available data continue to signal that economic weakness in the euro area has extended into the beginning of the year, while broadly confirming signs of stabilisation in a number of indicators, albeit at low levels. At the same time, necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover, supported by a strengthening of global demand and our accommodative monetary policy stance. In order to support confidence, it is essential for governments to continue implementing structural reforms, to build further on the progress made in fiscal consolidation, and to proceed with financial sector restructuring.","With regard to the liquidity situation of banks, counterparties have so far repaid €224.8 billion of the €1,018.7 billion obtained in the two three-year longer-term refinancing operations (LTROs) settled in December 2011 and March 2012. In net terms, this implies that, of the increase in the outstanding volume of bank refinancing through the ECB’s monetary policy operations of around €500 billion between mid-December 2011 and early March 2012, about €200 billion have now been repaid. These repayments reflect improvements in financial market confidence over the last few months and receding financial market fragmentation. We are closely monitoring conditions in the money market and their potential impact on the stance of monetary policy and the functioning of the transmission of our monetary policy to the economy. Our monetary policy stance will remain accommodative with the full allotment mode of liquidity provision.","Let me now explain our assessment in greater detail, starting with the economic analysis. The GDP outcome for the fourth quarter of 2012 was weak, with Eurostat’s second estimate indicating a contraction of 0.6% quarter on quarter. The decline was largely due to a fall in domestic demand but also reflected weak exports. As regards 2013, recent data and indicators suggest that economic activity should start stabilising in the first part of the year. A gradual recovery should commence in the second part, with export growth benefiting from a strengthening of global demand and domestic demand being supported by our accommodative monetary policy stance. Furthermore, the improvements in financial markets since July last year and the continued implementation of structural reforms should work their way through to the economy. At the same time, necessary balance sheet adjustments in the public and private sectors, and the associated tight credit conditions, will continue to weigh on economic activity.","This assessment is also reflected in the March 2013 ECB staff macroeconomic projections for the euro area, which foresee average annual real GDP growth in a range between -0.9% and -0.1% in 2013 and between 0.0% and 2.0% in 2014. Compared with the December 2012 Eurosystem staff macroeconomic projections, the ranges have been revised slightly downwards. The revision for 2013 mainly reflects a more negative carry-over effect from the outcome for real GDP in the fourth quarter of 2012, while the projected path of the recovery has remained broadly unchanged.","The Governing Council continues to see downside risks surrounding the economic outlook for the euro area. The risks relate to the possibility of weaker than expected domestic demand and exports and to slow or insufficient implementation of structural reforms in the euro area. These factors have the potential to dampen the improvement in confidence and thereby delay the recovery.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.8% in February 2013, down from 2.0% in January. The on-going decline in annual inflation rates mainly reflects the energy and food components of the price index. Looking ahead, while the monthly pattern of headline inflation rates may be somewhat volatile, underlying price pressures should remain contained given the environment of weak economic activity in the euro area. Inflation expectations are well-anchored and in line with price stability over the medium term.","The March 2013 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 1.2% and 2.0% in 2013 and between 0.6% and 2.0% in 2014. In comparison with the December 2012 Eurosystem staff macroeconomic projections, the ranges are broadly unchanged.","In the Governing Council‘s assessment, risks to the outlook for price developments continue to be seen as broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity.","Turning to the monetary analysis, monetary figures for January 2013 support our assessment that the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 remained broadly unchanged at 3.5% in January, after 3.4% in December 2012. The annual rate of growth of the narrow monetary aggregate, M1, increased to 6.7% from 6.3% in December 2012. The deposit base of MFIs in a number of stressed countries strengthened further in January.","The annual growth rate of loans (adjusted for loan sales and securitisation) to non-financial corporations stood at -1.5% in January, after -1.3% in December 2012. The annual growth in MFI loans to households moderated slightly to 0.5%, from 0.7% in December. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. At the same time, available information on the access to financing of non-financial corporates indicates tight credit conditions for small and medium-sized enterprises.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential to continue reducing fragmentation of euro area credit markets and strengthening the resilience of banks where needed. Decisive steps for establishing an integrated financial framework will help to accomplish this objective. The future Single Supervisory Mechanism (SSM) is one of the main building blocks, together with a Single Resolution Mechanism (SRM). Both are crucial elements for moving towards re-integrating the banking system.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","While the accommodative monetary policy stance will continue to support the recovery in the euro area, it is essential that fiscal and structural policies strengthen the prospects for economic growth over the medium term. As regards fiscal policies, the European Commission’s 2013 winter forecast reflects progress in reducing fiscal imbalances in the euro area. The euro area-wide general government deficit is expected to have declined from 4.2% of GDP in 2011 to 3.5% of GDP in 2012 and is projected to be reduced further to 2.8% of GDP this year. Governments should build on this progress with a view to further restoring confidence in the sustainability of public finances. At the same time, fiscal consolidation must be part of a comprehensive structural reform agenda to improve the outlook for job creation, economic growth and debt sustainability. In the view of the Governing Council, it is of particular importance at this juncture to address the current high long-term and youth unemployment. To this end, further product and labour market reforms are needed to create new job opportunities by supporting a dynamic, flexible and competitive economic environment.","We are now at your disposal for questions.","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. HICP inflation rates have declined further, as anticipated, and price developments over the medium term should remain contained. Monetary and loan dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, weak economic activity has extended into the early part of the year and a gradual recovery is projected for the second half of this year, subject to downside risks. Against this overall background our monetary policy stance will remain accommodative for as long as needed. In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability. It is essential for governments to intensify the implementation of structural reforms at national level and to strengthen euro area governance, including the implementation of the banking union. They should also build on progress made in fiscal consolidation and proceed with financial sector restructuring.","We are also closely monitoring money market conditions and their potential impact on our monetary policy stance and its transmission to the economy. As said on previous occasions, we will continue with fixed rate tender procedures with full allotment for as long as necessary.","Let me now explain our assessment in greater detail, starting with the economic analysis. The outcome for real GDP in the fourth quarter of 2012 was weak, with Eurostat’s second estimate indicating a contraction of 0.6% quarter on quarter. The decline was largely due to a fall in domestic demand but also reflected a drop in exports. Recent data and indicators confirm that the economic weakness extended into the early part of the year. Looking forward, euro area export growth should benefit from a recovery in global demand and our monetary policy stance should contribute to support domestic demand. Furthermore, the improvements in financial markets seen since last summer should work their way through to the real economy, notwithstanding recent uncertainties. Together, this should help stabilise euro area economic activity and lead to a gradual recovery in the second part of the year. At the same time, necessary balance sheet adjustments in the public and private sectors, and the associated tight credit conditions, will continue to weigh on economic activity.","This economic outlook for the euro area remains subject to downside risks. The risks include the possibility of even weaker than expected domestic demand and slow or insufficient implementation of structural reforms in the euro area. These factors have the potential to dampen the improvement in confidence and thereby delay the recovery.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.7% in March 2013, down from 1.8% in February. The ongoing decline in annual inflation rates mainly reflects the energy component of the price index. Looking ahead, price developments over the medium term should remain contained in an environment of weak economic activity in the euro area. Inflation expectations are firmly anchored and in line with price stability over the medium to long term.","Risks to the outlook for price developments continue to be broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity.","Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 moderated to 3.1% in February, down from 3.5% in January. The annual growth rate of the narrow monetary aggregate, M1, increased to 7.0% in February, from 6.6% in January. At the same time, MFI deposits in a number of stressed countries strengthened further in February.","The annual growth rate of loans (adjusted for loan sales and securitisation) to non-financial corporations and households remained broadly unchanged in February, at -1.4% and 0.4% respectively. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. At the same time, available information on non-financial corporates’ access to financing indicates tight credit conditions, particularly for small and medium-sized enterprises in several euro area countries.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets is reduced further and the resilience of banks strengthened where needed. However, considerable progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem as reflected in repayments of the three-year LTROs. Further decisive steps for establishing a banking union will help to accomplish this objective. In particular, in the light of recent experience, we must emphasise that the future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.","To sum up, taking into account today’s decision, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","As regards fiscal policies, euro area countries should build on their efforts to reduce government budget deficits and continue to implement structural reforms, thereby mutually reinforcing fiscal sustainability and economic growth. Fiscal policy strategies need to be complemented by growth-enhancing structural reforms. Such reforms should be ambitious and broad-ranging, encompassing product markets, including network industries, labour markets and the modernisation of public administration. To support employment, wage-setting should become more flexible and better aligned with productivity. These reforms will help countries in their efforts to regain competitiveness, set the foundations for sustainable growth and support the return of macroeconomic confidence.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Makúch for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting, during which we took a number of decisions on key ECB interest rates, liquidity provision and possible ways forward to enhance the provision of credit. The meeting was also attended by the Commission Vice-President, Mr Rehn.","First, based on our regular economic and monetary analyses, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 0.50% and the rate on the marginal lending facility by 50 basis points to 1.00%. The rate on the deposit facility will remain unchanged at 0.00%. These decisions are consistent with low underlying price pressure over the medium term. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. In keeping with this picture, monetary and loan dynamics remain subdued. At the same time, weak economic sentiment has extended into spring of this year. The cut in interest rates should contribute to support prospects for a recovery later in the year. Against this overall background, our monetary policy stance will remain accommodative for as long as needed. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.","Second, we are closely monitoring money market conditions and their potential impact on our monetary policy stance and its transmission to the economy. In this context, we decided today to continue conducting the main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 6th maintenance period of 2014 on 8 July 2014. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2014. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, we decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until the end of the second quarter of 2014 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","Third, the Governing Council decided to start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations.","In the meantime, it is essential for governments to intensify the implementation of structural reforms at national level, building on progress made in fiscal consolidation and proceeding with bank recapitalisation where needed. Furthermore, they should maintain the momentum towards a genuine Economic and Monetary Union, including the swift implementation of the banking union.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP contracted by 0.6% in the fourth quarter of 2012, following a decline of 0.1% in the third quarter. Output has thus declined for five consecutive quarters. Overall, labour market conditions remain weak. Recent developments in short-term indicators, notably survey data, indicate that weak economic sentiment has extended into spring of this year. Looking ahead, euro area export growth should benefit from a recovery in global demand and our monetary policy stance should contribute to support domestic demand. Furthermore, the improvements in financial markets seen since last summer should work their way through to the real economy. At the same time, necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Overall, euro area economic activity should stabilise and recover gradually in the second half of the year.","The risks surrounding the economic outlook for the euro area continue to be on the downside. They include the possibility of even weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in the euro area. These factors have the potential to dampen confidence and thereby delay the recovery.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.2% in April 2013, down from 1.7% in March. This decline in the annual inflation rate reflects a significant fall in energy prices, but is also due to a sizeable transitory effect coming from the annual rate of change in services prices on account of the timing of Easter. Inflation rates could remain subject to some volatility throughout the year. Looking further ahead, underlying price trends should persist and, over the medium term, inflation expectations remain firmly anchored in line with price stability.","Taking into account today’s decisions, risks to the outlook for price developments are broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker economic activity.","Turning to the monetary analysis, recent data confirm that the underlying pace of monetary expansion continues to be subdued. Annual growth in broad money moderated in March, standing at 2.6%, after 3.1% in February. The annual growth rate of the narrow monetary aggregate, M1, increased slightly further to 7.1% in March, reflecting the continued preference for the most liquid instruments in M3. Deposits with the domestic money-holding sector continued to grow further in most stressed countries in March.","The annual growth rates of loans (adjusted for loan sales and securitisation) to non-financial corporations and households have now remained broadly unchanged since the turn of the year, standing in March at -1.3% and 0.4% respectively. To a large extent, weak loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The recent Bank Lending Survey (BLS) confirmed weak demand for loans in the euro area. While some signs of stabilisation are emerging, the Survey on the access to finance of small and medium-sized enterprises (SMEs) in the euro area indicates continued tight credit conditions, particularly for SMEs in several euro area countries. Moreover, the available information indicates high risk perception on the part of banks.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets continues to decline further and that the resilience of banks is strengthened where needed. Progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem as reflected in repayments of the three-year LTROs. Further decisive steps for establishing a banking union will help to accomplish this objective. In particular, the Governing Council emphasises that the future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.","To sum up, taking into account today’s decisions, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","With regard to fiscal policies, the spring 2013 deficit and debt data notifications by euro area countries indicate that the average government deficit declined from 4.2% of GDP in 2011 to 3.7% in 2012. Over the same period, the average government debt rose from 87.3% to 90.6% of GDP. In order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits and continue, where needed, to take legislative action or otherwise promptly implement structural reforms, in such a way as to mutually reinforce fiscal sustainability and economic growth potential. Such structural reforms should target improvements in competitiveness and adjustment capacities, as well as aim to increase sustainable growth and employment.","We are now at your disposal for questions.","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 President of the Eurogroup, Finance Minister Dijsselbloem.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information has confirmed our assessment which led to the cut in interest rates in early May. The underlying price pressure in the euro area is expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued. Medium-term inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. At the same time, recent economic sentiment survey data have shown some improvement from low levels. The accommodative stance of our monetary policy, together with the significant improvements in financial markets since mid-2012, should contribute to support prospects for an economic recovery later in the year. Against this overall background, our monetary policy stance will remain accommodative for as long as necessary. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP contracted by 0.2% in the first quarter of 2013, following a decline of 0.6% in the fourth quarter of 2012. Output has thus declined for six consecutive quarters, with labour market conditions remaining weak. Recent developments in economic sentiment survey data have shown some improvement from low levels. Looking ahead to later in the year and to 2014, euro area export growth should benefit from a recovery in global demand, while domestic demand should be supported by the accommodative stance of our monetary policy and by the recent real income gains due to lower oil prices and generally lower inflation. Furthermore, the significant improvements in financial markets seen since last summer should work their way through to the real economy, as should the progress made in fiscal consolidation. At the same time, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Overall, euro area economic activity should stabilise and recover in the course of the year, albeit at a subdued pace.","This assessment is also reflected in the June 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.6% in 2013 and increasing by 1.1% in 2014. Compared with the March 2013 ECB staff macroeconomic projections, the projection for 2013 has been revised marginally downwards, largely reflecting the incorporation of the latest GDP data releases. For 2014 there has been a marginal upward revision.","The Governing Council continues to see downside risks surrounding the economic outlook for the euro area. They include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.4% in May 2013, up from 1.2% in April. This increase was, in particular, accounted for by a rebound in services prices related to the unwinding of the Easter effect and an increase in food prices. More generally, as stated last month, annual inflation rates are expected to be subject to some volatility throughout the year due particularly to base effects relating to energy and food price developments twelve months earlier. Looking through this volatility, the underlying price pressure over the medium term is expected to remain subdued, reflecting low capacity utilisation and a modest pace of economic recovery. Over the medium term, inflation expectations remain firmly anchored in line with price stability.","This assessment is also reflected in the June 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.4 % and 1.3 % in 2013 and 2014, respectively. In comparison with the March 2013 ECB staff macroeconomic projections, the projection for inflation for 2013 has been revised downwards, mainly reflecting the fall in oil prices, while the projection for 2014 remains unchanged.","In the Governing Council’s assessment, risks to the outlook for price developments are broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker economic activity.","Turning to the monetary analysis, recent data confirm that the underlying pace of monetary and, in particular, credit expansion continues to be subdued. Annual growth in broad money, M3, increased in April to 3.2%, from 2.6% in March, mainly due to a base effect and special factors. The same factors have impacted on the annual growth rate of the narrow monetary aggregate, M1, which increased from 7.1% in March to 8.7% in April.","The growth of loans to the private sector continued to be weak. The annual growth rates of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in April, broadly unchanged since the turn of the year. The annual negative growth of loans to non-financial corporations (adjusted for loan sales and securitisation) increased from -1.3% in March to -1.9% in April. This development stemmed, in particular, from net redemptions in short-term loans, which could reflect reduced demand for working capital against the background of weak order books in early spring. More generally, weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets.","In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets continues to decline further and that the resilience of banks is strengthened where needed. Progress has been made since last summer in improving the funding situation of banks, in strengthening the domestic deposit base in stressed countries and in reducing reliance on the Eurosystem as reflected in repayments of the three-year LTROs. Further decisive steps for establishing a banking union will help to accomplish this objective. In particular, the Governing Council emphasises that the future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","With regard to fiscal consolidation and structural reforms, the Governing Council welcomes the progress made and encourages governments to continue with determined efforts. It is essential that euro area countries do not unravel their efforts to reduce government budget deficits. The new European governance framework for fiscal and economic policies should be applied in a steadfast manner. In this respect, the Governing Council considers it very important that decisions by the EU Council to extend the time frame for the correction of excessive fiscal deficits should remain reserved for exceptional circumstances. At the same time, it is necessary to continue, where needed, to take legislative action or otherwise promptly implement structural reforms. Structural reforms should, in particular, target competitiveness and adjustment capacities in labour and product markets, thereby helping to generate employment opportunities in an environment of unacceptably high unemployment levels, especially among young workers, prevailing in several countries. Combined action on the fiscal and structural front should mutually reinforce fiscal sustainability and economic growth potential and thereby foster sustainable job creation.","We are now at your disposal for questions.","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 Vice-President, Mr. Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information has confirmed 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, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels. Our monetary policy stance is geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a recovery in economic activity later in the year and in 2014. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary. The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP declined by 0.3% in the first quarter of 2013, following a contraction of 0.6% in the last quarter of 2012. At the same time, labour market conditions remain weak. Recent developments in cyclical indicators, particularly those based on survey data, indicate some further improvement from low levels. Looking ahead to later in the year and to 2014, euro area export growth should benefit from a gradual recovery in global demand, while domestic demand should be supported by the accommodative monetary policy stance as well as the recent gains in real income owing to generally lower inflation. Furthermore, notwithstanding recent developments, the overall improvements in financial markets seen since last summer should work their way through to the real economy, as should the progress made in fiscal consolidation. This being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Overall, euro area economic activity should stabilise and recover in the course of the year, albeit at a subdued pace.","The risks surrounding the economic outlook for the euro area continue to be on the downside. The recent tightening of global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries.","As stated in previous months, annual inflation rates are expected to be subject to some volatility throughout the year owing particularly to base effects. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.6% in June 2013, up from 1.4% in May. This increase reflected an upward base effect relating to energy price developments twelve months earlier. However, underlying price pressures are expected to remain subdued over the medium term, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium-term inflation expectations remain firmly anchored in line with price stability.","The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker than expected economic activity.","Turning to the monetary analysis, recent data confirm the subdued monetary and, in particular, credit dynamics. Annual growth in broad money (M3) decreased in May to 2.9%, from 3.2% in April. Moreover, annual growth in M1 decreased to 8.4% in May, from 8.7% in April. The annual rate of change of loans to the private sector remained negative. While the annual growth rate of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in May, broadly unchanged since the turn of the year, the annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) weakened further to -2.1% in May, from -1.9% in April. As in April, strong monthly net redemptions in May were concentrated in short-term loans, possibly reflecting reduced demand for working capital against the background of weak order books in early spring. More generally, weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened 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 situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. This has contributed to reducing reliance on Eurosystem funding, as reflected in the ongoing repayments of the three-year longer-term refinancing operations (LTROs). 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 continues to decline further and that the resilience of banks is strengthened where needed. Further decisive steps for establishing a Banking Union will help to accomplish this objective. In particular, the future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","With regard to other economic policies, the Governing Council notes the initiatives taken by the European Council of 27-28 June 2013 in the areas of youth unemployment, investment and financing of small and medium-sized enterprises, as well as the European Council’s endorsement of the country-specific recommendations of the 2013 European semester. The Governing Council stresses that implementation of these recommendations is essential to contribute to a sustainable recovery in the euro area. Moreover, the new European governance framework for fiscal and economic policies should be applied in a steadfast manner and much more determined efforts should be pursued to carry forward structural reforms to foster growth and employment. In this respect, the Governing Council deems it particularly important to target competitiveness and adjustment capacities in labour and product markets. Finally, the Governing Council welcomes the setting-out of a number of steps towards the completion of the Banking Union as moves in the right direction, but also urges that they be implemented swiftly.","We are now at your disposal for questions.","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. Incoming information has confirmed 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, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity. Our monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a six-quarter economic contraction in the euro area, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity at low levels. At the same time, labour market conditions remain weak. Looking ahead to the remainder of the year and to 2014, euro area export growth should benefit from a gradual recovery in global demand, while domestic demand should be supported by the accommodative monetary policy stance as well as the recent gains in real income owing to generally lower inflation. Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. This being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Overall, euro area economic activity should stabilise and recover at a slow pace.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.6% in July 2013, unchanged from June. Annual inflation rates are currently expected to temporarily fall over the coming months, owing particularly to base effects relating to energy price developments twelve months earlier. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability.","The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker than expected economic activity.","Turning to the monetary analysis, underlying money and, in particular, credit growth remained subdued in June. Annual growth in broad money (M3) decreased in June to 2.3%, from 2.9% in May. Moreover, annual growth in M1 decreased to 7.5% in June, from 8.4% in May. The annual rate of change of loans to the private sector weakened further. While the annual growth rate of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in June, broadly unchanged since the turn of the year, the annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.3% in June, after -2.1% in May. Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The bank lending survey for the second quarter of 2013 confirms that borrowers’ risk and macroeconomic uncertainty remained the main factors restraining banks’ lending policies. At the same time, the degree of net tightening of credit standards for loans to non-financial corporations remained unchanged in the second quarter of 2013, compared with the first quarter, and declined for loans to households.","Since the summer of 2012 substantial progress has been made in improving the funding situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. 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. Further decisive steps for establishing a Banking Union will help to accomplish this objective.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","As regards fiscal policies, in order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits. The emphasis should be on growth-friendly fiscal strategies which have a medium-term perspective and combine improving the quality and efficiency of public services with minimising distortionary effects of taxation. To reinforce the overall impact of such a strategy, Member States must step up the implementation of the necessary structural reforms so as to foster competitiveness, growth and job creation. Removing rigidities in the labour market, lowering the administrative burden and strengthening competition in product markets will particularly support small and medium-sized enterprises. These structural reform measures are essential to bring down the currently high level of unemployment, in particular among the younger citizens of the euro area.","We are now at your disposal for questions.","Ladies and gentlemen, I am very pleased to welcome you to our press conference. I 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 further underpinned 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, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to August confirm the expected gradual improvement in economic activity from low levels. Our monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the medium-term outlook for price stability. With regard to money market conditions, these have also been influenced by a gradual reduction in excess liquidity. Repayments of funds taken up in the context of the three-year longer-term refinancing operations reflect improvements in financial market confidence, some reduction in financial market fragmentation and the ongoing deleveraging by euro area banks. We will remain particularly attentive to the implications that these developments may have for the stance of monetary policy.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following six quarters of negative output growth, euro area real GDP rose, quarter on quarter, by 0.3% in the second quarter of 2013. This increase is partly explained by transitory effects related to weather conditions in the first half of this year. Since then, survey-based confidence indicators up to August have improved further from low levels, overall confirming our previous expectations of a gradual recovery in economic activity. Looking ahead to the remainder of the year and to 2014, in line with our baseline scenario, output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of external demand for exports. Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.","This assessment is also reflected in the September 2013 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 and increasing by 1.0% in 2014. Compared with the June 2013 Eurosystem staff macroeconomic projections, the projection for 2013 has been revised upwards by 0.2 percentage point, largely reflecting incoming data. For 2014 there has been a downward revision of 0.1 percentage point.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Recent 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 in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries.","According to Eurostat’s flash estimate, as expected, euro area annual HICP inflation was 1.3% in August 2013, down from 1.6% in June and July. On the basis of current assumptions for energy and exchange rate developments, annual inflation rates are expected to remain low in the coming months, owing in particular to energy price developments. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability.","This assessment is also reflected in the September 2013 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2013 and 1.3% in 2014. In comparison with the June 2013 Eurosystem staff macroeconomic projections, the projection for inflation for 2013 has been revised upwards by 0.1 percentage point, while the projection for 2014 remains unchanged.","The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating in particular to higher commodity prices as well as 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 July confirm that underlying broad money (M3) and, in particular, credit growth remained subdued. Annual growth in M3 decreased further in July to 2.2%, from 2.4% in June. Annual growth in M1 remained strong but decreased to 7.1% in July, from 7.5% in June. M3 growth continued to be mainly supported by net capital inflows into the euro area, while the annual rate of change of loans to the private sector weakened further. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in July, broadly unchanged since the turn of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.8% in July, compared with -2.3% in June. Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened 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 situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. 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. Further decisive steps to establish a banking union will help to accomplish this objective.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","In order to further reduce imbalances and to foster competitiveness, growth and job creation, euro area countries need to continue with their reform agenda. As regards fiscal policies, governments should not unravel their efforts to reduce deficits and put debt ratios on a downward path. The composition of fiscal consolidation should be geared towards growth-friendly measures which have a medium-term perspective and combine improving the quality and efficiency of public services with minimising distortionary effects of taxation. In terms of economic policies, product market reforms to increase competitiveness will facilitate the creation of new businesses, support the tradable goods sector and foster job creation, while high unemployment rates require decisive structural reforms to reduce rigidities in labour markets and to increase labour demand.","I am now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Noyer for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting, which was also attended by the Commission Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information and analysis have further underpinned 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, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to September confirm the expected gradual improvement in economic activity from low levels. Our monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the medium-term outlook for price stability. With regard to money market conditions, we will remain particularly attentive to developments which may have implications for the stance of monetary policy and are ready to consider all available instruments.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following six quarters of negative output growth, euro area real GDP rose, quarter on quarter, by 0.3% in the second quarter of 2013, also supported by temporary factors related to unusually adverse weather conditions in some euro area countries earlier this year. Developments in industrial production data point to somewhat weaker growth at the beginning of the third quarter, while survey-based confidence indicators up to September have improved further from low levels, overall confirming our previous expectations of a gradual recovery in economic activity. Looking ahead, output is expected to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of external demand for exports. Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors 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 in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries.","According to Eurostat’s flash estimate, and broadly in line with expectations, euro area annual HICP inflation decreased in September 2013 to 1.1%, from 1.3% in August. On the basis of current futures prices for energy, annual inflation rates are expected to remain at such low levels in the coming months. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability.","The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating in particular to higher commodity prices as well as 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 August indicate that the underlying growth of broad money (M3) and, in particular, credit remained subdued. Annual growth in M3 continued to be broadly stable at 2.3% in August, compared with 2.2% in July. Annual growth in M1 remained strong but decreased to 6.8% in August, from 7.1% in July. Net capital inflows into the euro area continued to be the main factor supporting annual M3 growth, while the annual rate of change of loans to the private sector remained weak. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.4% in August, broadly unchanged since the turn of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in August, compared with -2.8% in July. Weak loan dynamics for non-financial corporations continue to reflect primarily 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 situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. 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. Further decisive steps to establish a banking union will help to accomplish this objective.","To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.","As regards fiscal policies, euro area countries should not unravel their efforts to reduce deficits and put high government debt ratios on a downward path. The draft budgetary plans that countries will now deliver for the first time under the “two-pack” regulations need to provide for sufficiently far-reaching measures to achieve the fiscal targets for 2014. Governments must also decisively strengthen efforts to implement the needed structural reforms in product and labour markets. These reforms are required not only to help countries to regain competitiveness and to rebalance within the euro area, but also to create more flexible and dynamic economies that generate sustainable economic growth and employment.","We are now at your disposal for questions.","Ladies and gentlemen, I am very pleased to welcome you to our press conference. I will now report on the outcome of today’s meeting of the Governing Council, during which we took a number of decisions on key ECB interest rates, forward guidance and liquidity provision.","First, based on our regular economic and monetary analyses, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 0.25% and the rate on the marginal lending facility by 25 basis points to 0.75%. The rate on the deposit facility will remain unchanged at 0.00%. These decisions are in line with our forward guidance of July 2013, given the latest indications of further diminishing underlying price pressures in the euro area over the medium term, starting from currently low annual inflation rates of below 1%. In keeping with this picture, monetary and, in particular, credit dynamics 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 of maintaining inflation rates below, but close to, 2%. Such a constellation suggests 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. Accordingly, our monetary policy stance will remain accommodative for as long as necessary. It will thereby also continue to assist the gradual economic recovery as reflected in confidence indicators up to October.","Second, following today’s rate cut, the Governing Council reviewed the forward guidance provided in July and confirmed that it continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be 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.","Third, we continue to monitor closely money market conditions and their potential impact on our monetary policy stance. We are ready to consider all available instruments and, in this context, we decided today to continue conducting the main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 6th maintenance period of 2015 on 7 July 2015. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2015. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, we decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until the end of the second quarter of 2015 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.3%, quarter on quarter, in the second quarter of 2013, following six quarters of falling output. Developments in survey-based confidence indicators up to October are consistent with continued, albeit modest, growth in the second half of the year. Looking ahead, output is expected to continue to recover at a slow pace, in particular owing to a gradual 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 seen since last year appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower energy price inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors 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 decreased in October 2013 to 0.7%, from 1.1% in September. This decline was stronger than expected and reflected, in particular, lower food price inflation, a larger fall in energy prices and some weakening in services price inflation. On the basis of current futures prices for energy, annual inflation rates are expected to remain at low levels in the coming months. Underlying price pressures in the euro area are expected to remain subdued over the medium term. 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 of maintaining inflation rates below, but close to, 2%. Such a constellation suggests 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.","Taking into account today’s decisions, the risks to the outlook for price developments are broadly balanced over the medium term. Upside risks relate in particular to higher commodity prices as well as stronger than expected increases in administered prices and indirect taxes, and downside risks stem from weaker than expected economic activity.","Turning to the monetary analysis, data for September confirm the subdued underlying growth of broad money (M3) and, in particular, credit. Annual growth in M3 moderated to 2.1% in September, from 2.3% in August. Annual growth in M1 remained strong at 6.6%, reflecting a preference for liquidity, although it was below the peak of 8.7% observed in April. Net capital inflows into the euro area continued to be the main factor supporting annual M3 growth, while the annual rate of change of loans to the private sector remained weak. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.3% in September, broadly unchanged since the turn of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.7% in September, compared with -2.9% in August. Overall, weak loan dynamics for non-financial corporations continue to reflect primarily their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. At the same time, the October 2013 bank lending survey tentatively signals a stabilisation in credit conditions for firms and households, in the context of still weak loan demand.","Since the summer of 2012 substantial progress has been made in improving the funding situation 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 ECB’s comprehensive assessment before it adopts its supervisory role under the single supervisory mechanism 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. Further decisive steps to establish a banking union will help to restore confidence in the financial system.","To sum up, taking into account today’s decisions, 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, the euro area budget deficit is projected to decline further from 3.1% of GDP in 2013 to 2.5% in 2014, according to the European Commission’s autumn 2013 economic forecast. At the same time, the euro area government debt ratio is expected to rise from 95.5% of GDP in 2013 to 95.9% in 2014. In order to put high public debt ratios on a downward path, governments should not unravel their efforts to reduce deficits and sustain fiscal adjustment over the medium term. The composition of fiscal consolidation should be geared towards growth-friendly measures which have a medium-term perspective and combine improving the quality and efficiency of public services with minimising distortionary effects of taxation. Governments must also decisively strengthen efforts to implement the needed structural reforms in product and labour markets. Progress has been made in reducing current account deficits and unit labour cost differentials, but substantial efforts still need to be undertaken with a view to further improving competitiveness, supporting rebalancing within the euro area and creating more flexible and dynamic economies that in turn generate sustainable economic growth and employment.","We are now at your disposal for questions.","Ladies and gentlemen, I am very pleased to welcome you to our press conference. I will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information and analysis have confirmed our assessment and monetary policy decisions of last month. 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 medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Such a constellation suggests 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. Our monetary policy stance will remain accommodative for as long as necessary, and will thereby continue to assist the gradual economic recovery in the euro area. In this context, the Governing Council confirmed its forward guidance that it continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be 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 developments closely and are ready to consider all available instruments.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a rise of 0.3% in the second quarter of 2013, real GDP in the euro area increased by 0.1%, quarter on quarter, in the third quarter. Developments in survey-based confidence indicators up to November are consistent with a positive growth rate also in the fourth quarter of the year. Looking ahead to 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 seen since last year 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.","This assessment is also reflected in the December 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013 ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has remained unchanged and it has been revised upwards by 0.1 percentage point for 2014.","The risks surrounding the economic outlook for the euro area are assessed 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 increased in November 2013 to 0.9%, from 0.7% in October. The increase was broadly as expected and reflected, in particular, an upward base effect in energy prices and higher 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 of maintaining inflation rates below, but close to, 2%.","Broadly in line with this assessment, the December 2013 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation at 1.4% in 2013, at 1.1% in 2014 and at 1.3% in 2015. In comparison with the September 2013 ECB staff macroeconomic projections, the projection for inflation for 2013 has been revised downwards by 0.1 percentage point and for 2014 it has been revised downwards by 0.2 percentage point.","The risks to the outlook for price developments are seen to be broadly balanced over the medium term. Upside risks relate to higher commodity prices and stronger than expected increases in administered prices and indirect taxes, while downside risks stem from weaker than expected economic activity.","Concerning the staff macroeconomic projections, let me inform you that the Governing Council has decided to publish more details as of December 2013. You will receive this material today after the press conference.","Turning to the monetary analysis, data for October confirm the assessment of subdued underlying growth in broad money (M3) and credit. Annual growth in M3 moderated to 1.4% in October, from 2.0% in September. This moderation was partly related to a base effect. Annual growth in M1 remained strong at 6.6%, reflecting a preference for liquidity, although it was below the peak of 8.7% observed in April. Net capital inflows into the euro area continued to be the main factor supporting annual M3 growth, while the annual rate of change of loans to the private sector remained weak. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.3% in October, broadly unchanged since the beginning of the year. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in October, following -2.8% in September and -2.9% in August. 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 situation 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 ECB’s comprehensive assessment before it adopts its supervisory role under the single supervisory mechanism 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. Further decisive 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, the Governing Council welcomes the European Commission’s assessment of the 2014 draft budgetary plans which were submitted in October for the first time under the “two-pack” regulations. This new surveillance exercise needs to be fully effective. In order to put high public debt ratios on a downward path, governments should not unravel their efforts to reduce deficits and sustain fiscal adjustment over the medium term. In particular, consolidation measures should be growth-friendly and have a medium-term perspective, so as both to improve public services and minimise the distortionary effects of taxation. At the same time, there is a need to push ahead with product and labour market reforms, in order to improve competitiveness, raise potential growth, generate employment opportunities and foster the adaptability of our economies.","We are now at your disposal for questions.","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. I would also like to take this opportunity to welcome Latvia as the eighteenth country to adopt the euro as its currency. Accordingly, Mr Rimšēvičs, the Governor of Latvijas Banka, became a member of the Governing Council on 1 January 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 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 emphasises 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 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 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 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 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 (M3) 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 (adjusted for loan sales and securitisation) stood at 0.3% in November, broadly unchanged since the beginning of 2013. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) 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 situation 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 minimising distortionary effects of taxation. When accompanied by the decisive implementation of structural reforms, this will further support the gradual economic recovery in the euro area and have a positive impact on public finances. Reforms in product and labour markets and a rigorous enactment of Single Market policies warrant particular focus to improve the outlook for economic growth and to foster job creation in an environment of high unemployment.","We are now at your disposal for questions.","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. Incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with our previous assessment. At the same time, underlying price pressures in the euro area remain weak and monetary and credit dynamics are subdued. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. As stated previously, we are now experiencing a prolonged period of low inflation, which will be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on. Regarding the medium-term outlook for prices and growth, further information and analysis will become available in early March. Recent evidence fully confirms our decision to maintain an accommodative stance of monetary policy for as long as necessary, which will assist the gradual economic recovery in the euro area. We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. 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 recent money market volatility and its potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments. Overall, we remain firmly 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. Following two quarters of positive real GDP growth, developments in recent data and surveys overall suggest that the moderate recovery continued in the last quarter of 2013. Looking ahead, our previous assessment of economic growth has been confirmed. Output in the euro area is expected to recover at a slow pace. In particular, some improvement in domestic demand should materialise, supported by the accommodative monetary policy stance, improving financing conditions and the progress made in fiscal consolidation and structural reforms. In addition, real incomes are supported by lower energy price inflation. Economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. At the same time, although unemployment in the euro area is stabilising, it remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on the pace of the economic recovery.","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, notably in emerging market economies, may have the potential to negatively affect economic conditions. Other downside risks include 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 0.7% in January 2014, after 0.8% in December. This decline was mainly due to energy price developments. At the same time, the inflation rate in January 2014 was lower than generally expected On the basis of current information and prevailing futures prices for energy, annual HICP 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. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","Both upside and downside risks to the outlook for price developments remain limited, and they continue to be broadly balanced over the medium term.","Turning to the monetary analysis, data for December 2013 confirm the assessment of subdued underlying growth in broad money (M3) and credit. Annual growth in M3 moderated to 1.0% in December, from 1.5% in November. Deposit outflows in December mirrored the strong sales of government and private sector securities by euro area MFIs, which, in part, could be related to adjustments by banks in anticipation of the ECB’s comprehensive assessment of banks’ balance sheets. These developments also affected annual growth in M1, which moderated to 5.8% in December but remained strong. 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 continued to contract. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.3% in December, broadly unchanged since the beginning of 2013. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in December, after -3.1% in November. The January 2014 bank lending survey provides indications of some further stabilisation in credit conditions for firms and households and a smaller net decline in loan demand by enterprises. 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 situation 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. This is the objective of the ECB’s comprehensive assessment, while the timely implementation of additional steps to establish a banking union will further help to restore confidence in the financial system.","To sum up, the economic analysis confirms our expectation of 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 the picture of subdued underlying price pressures in the euro area over the medium term.","As regards fiscal policies, euro area countries should not unravel past consolidation efforts and should put high government debt on a downward trajectory over the medium term. Fiscal strategies should be in line with the Stability and Growth Pact and should ensure a growth-friendly composition of consolidation which combines improving the quality and efficiency of public services with minimising distortionary effects of taxation. When accompanied by the decisive implementation of structural reforms, these strategies will further support the still fragile economic recovery. Governments must therefore continue with product and labour market reforms. These reforms will help to enhance the euro area’s growth potential and reduce the high unemployment rates in many countries.","We are now at your disposal for questions.","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. Incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with our previous assessment. At the same time, the latest ECB staff macroeconomic projections, now covering the period up to the end of 2016, support earlier expectations of a prolonged period of low inflation, to be followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%. In keeping with this picture, monetary and credit dynamics remain subdued. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","Regarding the medium-term outlook for prices and growth, the information and analysis now available fully confirm our decision to maintain an accommodative monetary policy stance for as long as necessary. This will assist the gradual economic recovery in the euro area. We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilised capacity and subdued money and credit creation.","We are monitoring developments on money markets closely and are ready to consider all instruments available to us. Overall, we remain firmly 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 0.3%, quarter on quarter, in the last quarter of 2013, thereby increasing for three consecutive quarters. Developments in survey-based confidence indicators up to February are consistent with continued moderate growth also in the first quarter of this year. Looking ahead, the ongoing recovery is expected to proceed, albeit at a slow pace. In particular, some further improvement in domestic demand should materialise, supported by the accommodative monetary policy stance, improving financing conditions and the progress made in fiscal consolidation and structural reform. In addition, real incomes are supported by lower energy prices. Economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. At the same time, although unemployment in the euro area is stabilising, it remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the economic recovery.","This assessment is also broadly reflected in the March 2014 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.2% in 2014, 1.5% in 2015 and 1.8% in 2016. Compared with the December 2013 Eurosystem staff macroeconomic projections, the projection for real GDP growth for 2014 has been revised slightly upwards.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and export growth and insufficient implementation of structural reforms in euro area countries.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.8% in February 2014, unchanged from the (upwardly revised) outcome for January. While energy prices fell more strongly in February than in the previous month, increases in industrial goods and services prices were higher than in January. On the basis of current information and prevailing futures prices for energy, annual HICP inflation rates are expected to remain at around current levels in the coming months. Thereafter, inflation rates should gradually increase and reach levels closer to 2%, in line with inflation expectations for the euro area over the medium to long term.","This assessment is also broadly reflected in the March 2014 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.0% in 2014, 1.3% in 2015 and 1.5% in 2016. In the last quarter of 2016, annual HICP inflation is projected to be 1.7%. In comparison with the December 2013 Eurosystem staff macroeconomic projections, the projection for inflation for 2014 has been revised slightly downwards. In view of the first publication of a three-year projection horizon in the March 2014 ECB staff macroeconomic projections, it should be stressed that the projections are conditional on a number of technical assumptions, including unchanged exchange rates and declining oil prices, and that the uncertainty surrounding the projections increases with the length of the projection horizon.","Regarding the Governing Council’s risk assessment, both upside and downside risks to the outlook for price developments are seen as limited and are considered to be broadly balanced over the medium term.","Turning to the monetary analysis, data for January 2014 confirm the assessment of subdued underlying growth in broad money (M3) and credit. Annual growth in M3 increased to 1.2% in January, from 1.0% in December. The monthly inflow to M3 in January was substantial, compensating for the strong outflow in December. The increase in M3 growth reflected a stronger annual growth rate of M1, which rose to 6.2% from 5.7% in December. 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 continued to contract. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.9% in January, unchanged from December. 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. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.2% in January 2014, broadly unchanged since the beginning of 2013.","Since the summer of 2012 substantial progress has been made in improving the funding situation 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. This is the objective of the ongoing comprehensive assessment by the ECB, while a timely implementation of additional steps to establish a banking union will further help to restore confidence in the financial system.","To sum up, the economic analysis confirms our expectation of a prolonged period of low inflation, to be followed by a gradual upward movement towards levels of inflation closer to 2%. A cross-check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term.","As regards fiscal policies, the ECB staff macroeconomic projections indicate continued progress in reducing fiscal imbalances in the euro area. The aggregate euro area general government deficit is expected to have declined to 3.2% of GDP in 2013 and is projected to be reduced further to 2.7% of GDP this year. General government debt is projected to peak at 93.5% of GDP in 2014, before declining slightly in 2015. Looking ahead, euro area countries should not unravel past consolidation efforts and should put high government debt ratios on a downward trajectory over the medium term. Fiscal strategies should be in line with the Stability and Growth Pact and should ensure a growth-friendly composition of consolidation which combines improving the quality and efficiency of public services with minimising distortionary effects of taxation. National authorities should also continue with the decisive implementation of structural reforms in all euro area countries. These reforms should aim, in particular, to make it easier to do business and to boost employment, thus enhancing the euro area’s growth potential and reducing unemployment in the euro area countries. To this end, the Governing Council welcomes the European Commission’s communication of yesterday on the prevention and correction of macroeconomic imbalances and on the Excessive Deficit Procedure. Looking ahead, it is key that the macroeconomic surveillance framework in the euro area, which was significantly strengthened in the wake of the sovereign debt crisis, is implemented fully and in a consistent manner.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with our previous assessment. At the same time, recent information remains consistent with our expectation of a prolonged period of low inflation followed by a gradual upward movement in HICP inflation rates. The signals from the monetary analysis confirm the picture of subdued underlying price pressures in the euro area over the medium term. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","Looking ahead, we will monitor developments very closely and will consider all instruments available to us. We are resolute in our determination to maintain a high degree of monetary accommodation and to act swiftly if required. Hence, we do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilised capacity and subdued money and credit creation. At the same time, we are closely following developments on money markets. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the last quarter of 2013, after 0.1% and 0.3% in the previous two quarters respectively. Survey data that encompass the first quarter of this year are consistent with continued moderate growth, confirming previous expectations that the ongoing recovery is increasingly supported by firmer domestic demand. Looking ahead, some further improvement in domestic demand should materialise, supported by the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, and the progress made in fiscal consolidation and structural reforms. In addition, real incomes are supported by moderate price developments, in particular lower energy prices. Economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. At the same time, although labour markets have shown the first signs of improvement, unemployment in the euro area remains high and, overall, unutilised capacity is sizeable. Moreover, the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the economic recovery.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.5% in March 2014, down from 0.7% in February. The decrease reflects falls in the annual rates of change of the food, goods and services components, partly offset by a more moderate decline in energy prices. On the basis of current exchange rates and prevailing futures prices for energy, annual HICP inflation is expected to pick up somewhat in April, partly related to the volatility of service prices in the months around Easter. Over the following months, annual HICP inflation is expected to remain low, before gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016. At the same time, medium to long-term inflation expectations remain firmly anchored in line with price stability.","The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.","Turning to the monetary analysis, data for February 2014 point to subdued underlying growth in broad money (M3). Annual growth in M3 was broadly stable in February at 1.3%, compared with 1.2% in January. The growth of the narrow monetary aggregate M1 remained robust at 6.2% in February, after 6.1% in January. The main factor supporting annual M3 growth continued to be the increase in the MFI net external asset position, reflecting the keen interest of international investors in euro area assets.","MFI loans to the private sector continued to decline in February. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -3.1%, compared with -2.8% in January. 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. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.4% in February 2014, still broadly unchanged since the beginning of 2013.","Since the summer of 2012, substantial progress has been made in improving the funding situation 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. This is the objective of the ongoing comprehensive assessment by the ECB.","To sum up, the economic analysis confirms our expectation of a prolonged period of low inflation followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%. A cross-check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term.","As regards fiscal policies, euro area countries have made important progress in correcting fiscal imbalances. They should not unravel past consolidation achievements and should put high government debt ratios on a downward trajectory over the medium term, in line with the Stability and Growth Pact. Fiscal strategies should ensure a growth-friendly composition of consolidation to achieve better quality and more efficient public services, while minimising the distortionary effects of taxation. Further decisive steps are needed to reform product and labour markets with a view to improving competitiveness, raising potential growth, generating employment opportunities and making euro area economies more flexible.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Coene for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of today’s meeting, which was also attended by the President of the Eurogroup, Finance Minister Dijsselbloem.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information continues to indicate that the moderate recovery of the euro area economy is proceeding in line with our previous assessment. At the same time, recent information remains consistent with our expectation of a prolonged period of low inflation followed by only a gradual upward movement in HICP inflation rates. The signals from the monetary analysis confirm the picture of subdued underlying price pressures in the euro area over the medium term. Inflation expectations for the euro area over the medium to long term remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","Looking ahead, we will monitor economic developments and money markets very closely. We will maintain a high degree of monetary accommodation and act swiftly, if required, with further monetary policy easing. We firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilised capacity, and subdued money and credit creation. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation. Further information and analysis concerning the outlook for inflation and the availability of bank loans to the private sector will be available in early June.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the last quarter of 2013, thereby increasing for three consecutive quarters. Recent data and survey indicators confirm that the ongoing moderate recovery continued in the first quarter of 2014 and at the beginning of the second quarter. Looking ahead, domestic demand should continue to be supported by a number of factors, including the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, the progress made in fiscal consolidation and structural reforms, and developments in energy prices. At the same time, although labour markets have stabilised and shown the first signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in March and the necessary balance sheet adjustments in the public and private sectors continue to weigh on the pace of the economic recovery.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Geopolitical risks, as well as developments in global financial markets and emerging market economies, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.7% in April 2014, up from 0.5% in March. As expected, given the timing of Easter, the increase was mainly due to a rise in services prices. On the basis of current information, annual HICP inflation is expected to remain around present low levels over the coming months, before only gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016. New macroeconomic projections by Eurosystem staff will become available in early June. Medium to long-term inflation expectations remain firmly anchored in line with price stability.","The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.","Turning to the monetary analysis, data for March 2014 continue to point to subdued underlying growth in broad money (M3). Annual growth in M3 moderated to 1.1% in March, from 1.3% in February. The growth of the narrow monetary aggregate M1 remained robust but decreased to 5.6 % in March, after 6.2% in February. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, remains the main factor supporting annual M3 growth.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was ‑3.1% in March, unchanged from February. 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. The annual growth rate of loans to households (adjusted for loan sales and securitisation) stood at 0.4% in March 2014, broadly unchanged since the beginning of 2013.","The April 2014 bank lending survey confirmed the stabilisation of credit conditions for loans to enterprises and households. Credit standards over the previous three months remained broadly unchanged for loans to enterprises but were eased in net terms for households. Broadly in line with these results, in the survey on the access to finance of small and medium-sized enterprises (SMEs) for the period October 2013-March 2014, SMEs reported that bank loan availability had become less negative and had actually improved in some euro area countries. According to both surveys, the general economic outlook contributed less negatively or even positively to these developments. At the same time, banks still reported tight levels of credit standards when seen in a historical perspective.","Since the summer of 2012, substantial progress has been made in improving the funding situation 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. In this context, the ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital and solvency position, thereby contributing to overcome any existing credit supply restriction that could hamper the recovery.","To sum up, the economic analysis confirms our expectation of a prolonged period of low inflation followed by only a gradual upward movement in HICP inflation rates towards levels closer to 2%. A cross-check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term.","Regarding fiscal policies, according to the European Commission’s spring forecast, the general government deficit in the euro area is expected to decline further, from 3.0% of GDP in 2013 to 2.5% this year and to 2.3% in 2015. The government debt-to-GDP ratio is expected to stabilise at 96.0% in 2014 and to decline to 95.4% in 2015. In view of still rather high debt ratios and to improve fiscal sustainability, euro area countries should not unravel progress made with fiscal consolidation and should comply with their commitments under the Stability and Growth Pact. At the same time, comprehensive and ambitious structural reforms in product and labour markets are warranted to lift the euro area’s growth potential, improve its adjustment capacity and reduce the high unemployment facing many euro area countries today. To this end, the Governing Council concurs with Tuesday’s ECOFIN Council communication that decisive policy action is needed in countries where macroeconomic imbalances hinder the smooth functioning of Economic and Monetary Union.","We are now at your disposal for questions.","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 Vice-President, Mr Rehn.","In pursuing our price stability mandate, today we decided on a combination of measures to provide additional monetary policy accommodation and to support lending to the real economy. This package includes further reductions in the key ECB interest rates, targeted longer-term refinancing operations, preparatory work related to outright purchases of asset-backed securities and a prolongation of fixed rate, full allotment tender procedures. In addition, we have decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme.","The decisions are based on our economic analysis, taking into account the latest macroeconomic projections by Eurosystem staff, and the signals coming from the monetary analysis. Together, the measures will contribute to a return of inflation rates to levels closer to 2%. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Looking ahead, the Governing Council is strongly determined to safeguard this anchoring. Concerning our forward guidance, the key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. This expectation is further underpinned by our decisions today. Moreover, if required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation.","Let me now briefly describe the individual measures decided today. Further details will be published at 3.30 p.m. on the ECB’s website.","First, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.15% and the rate on the marginal lending facility by 35 basis points to 0.40%. The rate on the deposit facility was lowered by 10 basis points to -0.10%. These changes will come into effect on 11 June 2014. The negative rate will also apply to reserve holdings in excess of the minimum reserve requirements and certain other deposits held with the Eurosystem.","Second, in order to support bank lending to households and non-financial corporations, excluding loans to households for house purchase, we will be conducting a series of targeted longer-term refinancing operations (TLTROs). All TLTROs will mature in September 2018, i.e. in around 4 years. Counterparties will be entitled to borrow, initially, 7% of the total amount of their loans to the euro area non-financial private sector, excluding loans to households for house purchase, outstanding on 30 April 2014. Lending to the public sector will not be considered in this calculation. The combined initial entitlement amounts to some €400 billion. To that effect, two successive TLTROs will be conducted in September and December 2014. In addition, from March 2015 to June 2016, all counterparties will be able to borrow, quarterly, up to three times the amount of their net lending to the euro area non-financial private sector, excluding loans to households for house purchase, over a specific period in excess of a specified benchmark. Net lending will be measured in terms of new loans minus redemptions. Loan sales, securitisations and write-downs do not affect the net lending measure. The interest rate on the TLTROs will be fixed over the life of each operation, at the rate on the Eurosystem’s main refinancing operations (MROs) prevailing at the time of take-up, plus a fixed spread of 10 basis points. Starting 24 months after each TLTRO, counterparties will have the option to make repayments. A number of provisions will aim to ensure that the funds support the real economy. Those counterparties that have not fulfilled certain conditions regarding the volume of their net lending to the real economy will be required to pay back borrowings in September 2016.","In addition, the Governing Council decided to extend the existing eligibility of additional assets as collateral, notably under the additional credit claims framework, at least until September 2018.","Third, the Governing Council decided to intensify preparatory work related to outright purchases in the ABS market to enhance the functioning of the monetary policy transmission mechanism. Under this initiative, the Eurosystem will consider purchasing simple and transparent asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector, taking into account the desirable changes in the regulatory environment, and will work with other relevant institutions to that effect.","Fourth, in line with our forward guidance and our determination to maintain a high degree of monetary accommodation, as well as to contain volatility in money markets, we decided to continue conducting the MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period ending in December 2016. Furthermore, we decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted before the end of the reserve maintenance period ending in December 2016 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. In addition, we decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the first quarter of this year. This confirmed the ongoing gradual recovery, while the outcome was somewhat weaker than expected. Most recent survey results signal moderate growth also in the second quarter of 2014. Looking ahead, domestic demand should continue to be supported by a number of factors, including the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, the progress made in fiscal consolidation and structural reforms, and gains in real disposable income resulting from falls in energy prices. At the same time, although labour markets have shown some further signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in April and the necessary balance sheet adjustments in the public and private sectors are likely to continue to weigh on the pace of the economic recovery.","This assessment of a moderate recovery is also reflected in the June 2014 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.0% in 2014, 1.7% in 2015 and 1.8% in 2016. Compared with the March 2014 ECB staff macroeconomic projections, the projection for real GDP growth for 2014 has been revised downwards and the projection for 2015 has been revised upwards.","The risks surrounding the economic outlook for the euro area continue to be on the downside. Geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.5% in May 2014, after 0.7% in April. This outcome was lower than expected. On the basis of the information available to us at today’s meeting, annual HICP inflation is expected to remain at low levels over the coming months, before increasing only gradually during 2015 and 2016, thereby underpinning the case for today’s decisions. Meanwhile, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Looking ahead, the Governing Council is strongly determined to safeguard this anchoring.","Our assessment has been supported by the June 2014 Eurosystem staff macroeconomic projections for the euro area. They foresee annual HICP inflation at 0.7% in 2014, 1.1% in 2015 and 1.4% in 2016. In the last quarter of 2016, annual HICP inflation is projected to be 1.5%. In comparison with the March 2014 ECB staff macroeconomic projections, the projections for inflation for 2014, 2015 and 2016 have been revised downwards. It should be stressed that the projections are conditional on a number of technical assumptions, including exchange rates and oil prices, and that the uncertainty surrounding each projection increases with the length of the projection horizon.","The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, we will closely monitor the possible repercussions of geopolitical risks and exchange rate developments.","Turning to the monetary analysis, data for April 2014 continue to point to subdued underlying growth in broad money (M3). Annual growth in M3 moderated further to 0.8% in April, from 1.0% in March. The growth of the narrow monetary aggregate M1 moderated to 5.2 % in April, after 5.6% in March. In the recent past, the increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, has been the main factor supporting annual M3 growth.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.7% in April 2014, compared with -3.1% in March. 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. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.4% in April 2014, broadly unchanged since the beginning of 2013.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis led the Governing Council to decide on a combination of measures to provide further monetary policy accommodation and to support lending to the real economy.","In order to strengthen the economic recovery, banks and policy-makers in the euro area must step up their efforts. Against the background of weak credit growth, the ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital and solvency position, thereby contributing to overcome any existing credit supply restriction that could hamper the recovery. At the same time, policy-makers in the euro area should push ahead in the areas of fiscal policies and structural reforms.","As regards fiscal policies, the Eurosystem staff macroeconomic projections indicate continued progress in restoring sound public finances in the euro area. The aggregate euro area general government deficit is projected to decline gradually from 3.0% of GDP in 2013 to 2.5% of GDP in 2014. For 2015 and 2016, a further decline to 2.3% and 1.9 %, respectively, is projected. General government debt is projected to peak at 93.4% of GDP this year. Thereafter, it is projected to decline, reaching around 91% in 2016. As regards structural reforms, important steps have been taken to increase the competitiveness and the adjustment capacity of countries’ labour and product markets, although progress has been uneven and is far from complete. In this context, the Governing Council takes note of the European Commission’s recommendations on fiscal and structural policies, published on 2 June 2014, to continue the path of reducing budgetary and macroeconomic imbalances. The recommendation to the Council to abrogate the excessive deficit procedures for four euro area countries indicates continued progress in restoring sound public finances. However, euro area countries should not unravel progress made with fiscal consolidation. A full and consistent implementation of the euro area’s macroeconomic surveillance framework, together with the necessary policy actions by euro area countries, will help to raise potential growth, increase the euro area’s resilience to shocks and facilitate job creation.","We are now at your disposal for questions.","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 latest information signals that the euro area economy continued its moderate recovery in the second quarter, with low rates of inflation and subdued monetary and credit growth. 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 of maintaining inflation rates below, but close to, 2%. The combination of monetary policy measures decided last month has already led to a further easing of the monetary policy stance. The monetary operations to take place over the coming months will add to this accommodation and will support bank lending. As our measures work their way through to the economy, they will contribute to a return of inflation rates to levels closer to 2%. Concerning our forward guidance, the key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. Moreover, the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation. We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.","As a follow-up to the decisions taken in early June, the Governing Council today also decided on specific modalities for the targeted longer-term refinancing operations (TLTROs). The aim of the TLTROs is to enhance the functioning of the monetary policy transmission mechanism by supporting lending to the real economy. A press release on the modalities for the TLTROs will be published today at 3.30 p.m. As announced last month, we have also started to intensify preparatory work related to outright purchases in the ABS market to enhance the functioning of the monetary policy transmission mechanism.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the first quarter of this year. Economic indicators, including survey results available up to June, signal a continuation of the very gradual recovery in the second quarter of 2014. Looking ahead, domestic demand should be supported by a number of factors, including the further accommodation in the monetary policy stance and the ongoing improvements in financing conditions. In addition, the progress made in fiscal consolidation and structural reforms, as well as gains in real disposable income, should make a positive contribution to economic growth. Furthermore, demand for exports should benefit from the ongoing global recovery. However, although labour markets have shown some further signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in May and the necessary balance sheet adjustments in the public and private sectors are likely to continue to dampen the pace of the economic recovery.","The risks surrounding the economic outlook for the euro area remain on the downside. In particular, geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices and global demand for euro area products. A further downside risk relates to insufficient structural reforms in euro area countries, as well as weaker than expected domestic demand.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.5% in June 2014, unchanged from May. Among the main components, services price inflation increased from 1.1% in May to 1.3% in June, while food price inflation fell from 0.1% to -0.2%. On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016. Meanwhile, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, we will closely monitor the possible repercussions of geopolitical risks and exchange rate developments.","Turning to the monetary analysis, data for May 2014 continue to point to subdued underlying growth in broad money (M3). Annual growth in M3 was 1.0% in May, compared with 0.7% in April. The growth of the narrow monetary aggregate M1 moderated to 5.0 % in May, after 5.2% in April. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, has recently been an important factor supporting annual M3 growth.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.5% in May 2014, compared with -2.8% in April. Lending to non-financial corporations continues to be weak, reflecting the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5% in May 2014, broadly unchanged since the beginning of 2013.","Against the background of weak credit growth, the ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital and solvency position, thereby supporting the scope for credit expansion during the next stages of the recovery.","To sum up, the economic analysis indicates that the current low level of inflation should be followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%. A cross-check with the signals from the monetary analysis confirms this picture.","As regards fiscal policies, substantial fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Important structural reforms have increased competitiveness and the adjustment capacity of countries’ labour and product markets. However, significant challenges remain. To strengthen the foundations for sustainable growth and sound public finances, euro area countries should not unravel the progress made with fiscal consolidation, in line with the Stability and Growth Pact, and should proceed with structural reforms in the coming years. Fiscal consolidation should be designed in a growth-friendly manner, and structural reforms should focus on fostering private investment and job creation. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area’s resilience to shocks.","Finally, I wish to inform you that the Governing Council today announces that the frequency of our monetary policy meetings will change to a six-week cycle, from January 2015. The reserve maintenance periods will be extended to six weeks to match the new schedule. Moreover, we announce our commitment to publish regular accounts of the monetary policy meetings, which is intended to start with the January 2015 meeting. A press release providing more details will be published today at 3.30 p.m.","We are now at your disposal for questions.","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 available information remains consistent with our assessment of a continued moderate and uneven recovery of the euro area economy, with low rates of inflation and subdued monetary and credit dynamics. 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 of maintaining inflation rates below, but close to, 2%. The monetary policy measures decided in early June have led to an easing of the monetary policy stance. This is in line with our forward guidance and adequately reflects the outlook for the euro area economy, as well as the differences in terms of the monetary policy cycle between major advanced economies. The targeted longer-term refinancing operations (TLTROs) that are to take place over the coming months will enhance our accommodative monetary policy stance. These operations will provide long-term funding at attractive terms and conditions over a period of up to four years for all banks that meet certain benchmarks applicable to their lending to the real economy. This should help to ease funding conditions further and stimulate credit provision to the real economy. As our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to 2%.","As stated previously, and as a follow-up to our decision in early June, we have intensified preparatory work related to outright purchases in the asset-backed securities market to enhance the functioning of the monetary policy transmission mechanism.","Looking ahead, we will maintain a high degree of monetary accommodation. Concerning our forward guidance, the key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. Moreover, the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation. We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of this year euro area real GDP rose by 0.2%, quarter on quarter. With regard to the second quarter, monthly indicators have been somewhat volatile, partly reflecting technical factors. Overall, recent information, including survey data available for July, remains consistent with our expectation of a continued moderate and uneven recovery of the euro area economy. Looking ahead, domestic demand should be supported by a number of factors, including the accommodative monetary policy stance and the ongoing improvements in financial conditions. In addition, the progress made in fiscal consolidation and structural reforms, as well as gains in real disposable income, should make a positive contribution to economic growth. Furthermore, demand for exports should benefit from the ongoing global recovery. However, although labour markets have shown some further signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in June and the necessary balance sheet adjustments in the public and private sectors are likely to continue to dampen the pace of the economic recovery.","The risks surrounding the economic outlook for the euro area remain on the downside. In particular, heightened geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices and global demand for euro area products. A further downside risk relates to insufficient structural reforms in euro area countries, as well as weaker than expected domestic demand.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.4% in July 2014, after 0.5% in June. This reflects primarily lower energy price inflation, while the other main components of the HICP remained broadly unchanged On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016. Meanwhile, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.","The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, we will closely monitor the possible repercussions of heightened geopolitical risks and exchange rate developments.","Turning to the monetary analysis, data for June 2014 continue to point to subdued underlying growth in broad money (M3), with annual growth standing at 1.5% in June, compared with 1.0% in May. The growth of the narrow monetary aggregate M1 stood at 5.3% in June, up from 5.0% in May. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, remained an important factor supporting annual M3 growth.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained negative at -2.3% in June, compared with -2.5% in May and ‑3.2% in February. Lending to non-financial corporations continues to be weak, reflecting the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. At the same time, in terms of monthly flows, loans to non-financial corporations have shown some signs of a stabilisation over recent months, after recording sizeable negative monthly flows earlier in the year. This is consistent with the results of the bank lending survey for the second quarter of 2014 in which banks reported that credit standards for loans to enterprises had eased in net terms. However, they remain rather tight overall, when seen from a historical perspective. In addition, banks reported an improvement in net loan demand by non-financial corporations and households. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5% in June, broadly unchanged since the beginning of 2013.","Against the background of weak credit growth, the ECB’s ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital position, thereby supporting the scope for credit expansion during the next stages of the recovery.","To sum up, the economic analysis indicates that the current low level of inflation should be followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%. A cross-check with the signals from the monetary analysis confirms this picture.","As regards fiscal policies, comprehensive fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Important structural reforms have increased competitiveness and the adjustment capacity of countries’ labour and product markets. These efforts now need to gain momentum to enhance the euro area’s growth potential. Structural reforms should focus on fostering private investment and job creation. To restore sound public finances, euro area countries should proceed in line with the Stability and Growth Pact and should not unravel the progress made with fiscal consolidation. Fiscal consolidation should be designed in a growth-friendly way. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area’s resilience to shocks.","We are now at your disposal for questions.","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 Vice-President, Mr Katainen.","Based on our regular economic and monetary analyses, the Governing Council decided today to lower the  interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05% and the rate on the marginal lending facility by 10 basis points to 0.30%. The rate on the deposit facility was lowered by 10 basis points to -0.20%. In addition, the Governing Council decided to start purchasing non-financial private sector assets. The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet.","These decisions will add to the range of monetary policy measures taken over recent months. In particular, they will support our forward guidance on the key ECB interest rates and reflect the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. They will further enhance the functioning of the monetary policy transmission mechanism and support the provision of credit to the broad economy. In our analysis, we took into account the overall subdued outlook for inflation, the weakening in the euro area’s growth momentum over the recent past and the continued subdued monetary and credit dynamics. Today’s decisions, together with the other measures in place, have been taken with a view to underpinning the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. As our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to 2%. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following four quarters of moderate expansion, euro area real GDP remained unchanged in the second quarter of this year compared with the previous quarter. While it partly reflected one-off factors, this outcome was weaker than expected. With regard to the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining consistent with a modest expansion.","Domestic demand should be supported by the range of our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. At the same time, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, continued negative MFI loan growth to the private sector, and the necessary balance sheet adjustments in the public and private sectors. Looking ahead, the key factors and assumptions shaping the outlook for growth need to be monitored closely.","These elements are reflected in the September 2014 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 0.9% in 2014, 1.6% in 2015 and 1.9% in 2016. Compared with the June 2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth for 2014 and 2015 have been revised downwards and the projection for 2016 has been revised upwards.","The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside. In particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks could have a further negative impact on business and consumer confidence. Another downside risk relates to insufficient structural reforms in euro area countries.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in August 2014, after 0.4% in July. This decline reflects primarily lower energy price inflation, while the other main components remained broadly unchanged in aggregate. Inflation rates have now remained low for a considerable period of time. As said, today’s decisions, together with the other measures in place, have been taken to underpin the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016.","The September 2014 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation at 0.6% in 2014, 1.1% in 2015 and 1.4% in 2016. In comparison with the June 2014 Eurosystem staff macroeconomic projections, the projection for inflation for 2014 has been revised downwards. The projections for 2015 and 2016 have remained unchanged.","The Governing Council, taking into account the measures decided today, will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and the pass-through of our monetary policy measures.","Turning to the monetary analysis, data for July 2014 continue to point to subdued underlying growth in broad money (M3), with annual growth standing at 1.8% in July, compared with 1.6% in June. The growth of the narrow monetary aggregate M1 stood at 5.6% in July, up from 5.4% in June. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, remained an important factor supporting annual M3 growth.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained negative at -2.2% in July, unchanged compared with the previous month. However, net redemptions were again sizeable in July. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5% in July, broadly unchanged since the beginning of 2013.","Against the background of weak credit growth, the ECB is finalising the comprehensive assessment of banks’ balance sheets, which is of key importance to overcome credit supply constraints.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis led the Governing Council to decide on measures to provide further monetary policy accommodation and to support lending to the real economy.","With regard to structural reforms, important steps have been taken in several Member States, while in others such measures still need to be legislated for and implemented. These efforts now clearly need to gain momentum to achieve higher sustainable growth and employment in the euro area. Determined structural reforms in product and labour markets as well as action to improve the business environment are warranted. As regards  fiscal policies, comprehensive fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Euro area countries should not unravel the progress made with fiscal consolidation and should proceed in line with the Stability and Growth Pact. The Pact acts as an anchor for confidence, and the existing flexibility within the rules allows the budgetary costs of major structural reforms to be addressed and demand to be supported. There is also leeway to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area’s resilience to shocks.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Visco for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. Following up on the decisions of 4 September 2014, we also decided on the key operational details of both the asset-backed securities purchase programme and the new covered bond purchase programme.","This will allow us to start purchasing covered bonds and asset-backed securities (ABSs) in the fourth quarter of 2014, starting with covered bonds in the second half of October. The programmes will last for at least two years. Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these purchases will have a sizeable impact on our balance sheet.","The new measures will support specific market segments that play a key role in the financing of the economy. They will thereby further enhance the functioning of the monetary policy transmission mechanism, facilitate credit provision to the broad economy and generate positive spillovers to other markets. Taking into account the overall subdued outlook for inflation, the weakening in the euro area’s growth momentum over the recent past and the continued subdued monetary and credit dynamics, our asset purchases should ease the monetary policy stance more broadly. They should also strengthen our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies.","Together with the monetary accommodation already in place, the determined implementation of the new measures will underpin the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.","A separate press release will provide further information on the modalities of our new purchase programmes for ABSs and covered bonds. It will be released at 3.30 p.m.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following four quarters of moderate expansion, euro area real GDP remained unchanged between the first and second quarter of this year. Survey data available up to September confirm the weakening in the euro area’s growth momentum, while remaining consistent with a modest economic expansion in the second half of the year. Looking ahead to 2015, the outlook for a moderate recovery in the euro area remains in place, but the main factors and assumptions shaping this assessment need to be monitored closely. Domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. At the same time, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, continued negative bank loan growth to the private sector, and the necessary balance sheet adjustments in the public and private sectors.","The risks surrounding the economic outlook for the euro area remain on the downside. In particular, the recent weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in September 2014, after 0.4% in August. Compared with the previous month, this reflects a stronger decline in energy prices and somewhat lower price increases in most other components of the HICP. On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016.","The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and the pass-through of our monetary policy measures.","Turning to the monetary analysis, data for August 2014 continue to point to subdued underlying growth in broad money (M3), with the annual growth rate increasing moderately to 2.0% in August, after 1.8% in July. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 5.8% in August.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained negative at -2.0% in August, after -2.2% in the previous month. On average over recent months, net redemptions have moderated from the historically high levels recorded a year ago. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5% in August, broadly unchanged since the beginning of 2013.","Against the background of weak credit growth, the ECB is now close to finalising the comprehensive assessment of banks’ balance sheets, which is of key importance to overcome credit supply constraints.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the recent decisions taken by the Governing Council to provide further monetary policy accommodation and to support lending to the real economy.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, job creation and potential growth, other policy areas need to contribute decisively. In particular, the legislation and implementation of structural reforms clearly need to gain momentum in several countries. This applies to product and labour markets as well as to actions to improve the business environment for firms. As regards fiscal policies, euro area countries should not unravel the progress already made and should proceed in line with the rules of the Stability and Growth Pact. This should be reflected in the draft budgetary plans for 2015 that governments will now deliver, in which they will address the relevant country-specific recommendations. The Pact should remain the anchor for confidence in sustainable public finances, and the existing flexibility within the rules should allow governments to address the budgetary costs of major structural reforms, to support demand and to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area’s resilience to shocks.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. Following up on the decisions of 2 October 2014, we last month started purchasing covered bonds under our new programme. We will also soon start to purchase asset-backed securities. The programmes will last for at least two years. Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these asset purchases will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012.","Our measures will enhance the functioning of the monetary policy transmission mechanism, support financing conditions in the euro area, facilitate credit provision to the real economy and generate positive spillovers to other markets. They will thereby further ease the monetary policy stance more broadly, support our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies.","With the measures that have been put in place, monetary policy has responded to the outlook for low inflation, a weakening growth momentum and continued subdued monetary and credit dynamics. Our accommodative monetary policy stance will underpin the firm anchoring of medium to long-term inflation expectations, in line with our aim of achieving inflation rates below, but close to, 2%. As they work their way through to the economy, our monetary policy measures will together contribute to a return of inflation rates to levels closer to our aim.","However, looking ahead, and taking into account new information and analysis, the Governing Council will closely monitor and continuously assess the appropriateness of its monetary policy stance. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate. The Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.1%, quarter on quarter, in the second quarter of this year, revised up as compared with the earlier estimate. Since the summer months, incoming data and survey evidence have overall indicated a weakening in the euro area’s growth momentum. This information has now been incorporated into the most recent forecasts by private and public institutions, which indicate a downward revision of real GDP growth over the projection horizon up to 2016, with the outlook for a modest economic recovery remaining in place. This picture is broadly in line with the Governing Council’s current assessment. On the one hand, domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. On the other hand, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in the public and private sectors.","The risks surrounding the economic outlook for the euro area continue to be on the downside. In particular, the weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.4% in October 2014, after 0.3% in September. Compared with the previous month, this mainly reflects a somewhat less negative contribution from energy prices and slightly stronger annual increases in food prices. A fall in industrial goods prices was partly compensated for by an increase in services price inflation. On the basis of current information and prevailing futures prices for energy, annual HICP inflation is expected to remain at around current low levels over the coming months, before increasing gradually during 2015 and 2016. This is also the picture portrayed by the most recent forecasts, which now incorporate the recent sharp fall in oil prices.","The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate and energy price developments, and the pass-through of our monetary policy measures.","Turning to the monetary analysis, data for September 2014 continue to point to subdued underlying growth in broad money (M3), with the annual growth rate increasing moderately, however, to 2.5% in September, after 2.1% in August. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 6.2% in September.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained negative at -1.8% in September, after -2.0% in August and -2.2% in July. On average over recent months, net redemptions have moderated from the historically high levels recorded a year ago. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.6% in September, after 0.5% in August. In line with some stabilisation in credit flows, the October bank lending survey for the euro area reported a net easing of credit standards on loans to enterprises and households. At the same time, it has to be kept in mind that the level of credit standards is still tight from a historical perspective. Following the completion of the ECB’s comprehensive assessment, a further strengthening of banks’ balance sheets can be expected to contribute to reducing credit supply constraints and facilitating more lending.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the recent decisions taken by the Governing Council to provide further monetary policy accommodation and to support lending to the real economy.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the legislation and implementation of product and labour market reforms as well as actions to improve the business environment for firms need to gain momentum in several countries. The effective implementation of structural reforms will raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery. As regards fiscal policies, countries with remaining fiscal imbalances should not unravel the progress already made and should proceed in line with the rules of the Stability and Growth Pact. Throughout the procedural steps under the agreed framework, the Pact should remain the anchor for confidence in sustainable public finances. The existing flexibility within the rules should allow governments to address the budgetary costs of major structural reforms, to support demand and to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the resilience of the euro area economy to shocks.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the first press conference in our new premises. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. As regards our non-standard monetary policy measures, we have started purchasing covered bonds and asset-backed securities. These purchase programmes will last for at least two years. Next week, we will conduct the second targeted longer-term refinancing operation, to be followed by six further operations until June 2016. Taken together, our measures will have a sizeable impact on our balance sheet, which is intended to move towards the dimensions it had at the beginning of 2012.","In the coming months, our measures will further ease the monetary policy stance more broadly, support our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. However, the latest euro area macroeconomic projections indicate lower inflation, accompanied by weaker real GDP growth and subdued monetary dynamics.","In this context, early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments. We will also evaluate the broader impact of recent oil price developments on medium-term inflation trends in the euro area. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate. This would imply altering early next year the size, pace and composition of our measures. In response to the request of the Governing Council, ECB staff and the relevant Eurosystem committees have stepped up the technical preparations for further measures, which could, if needed, be implemented in a timely manner. All of our monetary policy measures are geared towards underpinning the firm anchoring of medium to long-term inflation expectations, in line with our aim of achieving inflation rates below, but close to, 2%, and contribute to a return of inflation rates towards that level.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the third quarter of this year. This was in line with earlier indications of a weakening in the euro area’s growth momentum, leading to a downward revision of the outlook for euro area real GDP growth in the most recent forecasts. The latest data and survey evidence up to November confirm this picture of a weaker growth profile in the period ahead. At the same time, the outlook for a modest economic recovery remains in place. On the one hand, domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and significantly lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. On the other hand, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in the public and private sectors.","These elements are reflected in the December 2014 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 0.8% in 2014, 1.0% in 2015 and 1.5% in 2016. Compared with the September 2014 ECB staff macroeconomic projections, the projections for real GDP growth have been revised substantially downwards. Downward revisions were made to the projections for both domestic demand and net exports.","The risks surrounding the economic outlook for the euro area are on the downside. In particular, the weak euro area growth momentum, alongside high geopolitical risks, has the potential to dampen confidence and especially private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in November 2014, after 0.4% in October. Compared with the previous month, this mainly reflects a stronger fall in energy price inflation and a somewhat lower annual increase in services prices. Taking into account the current environment of very low rates of inflation, it will be important to assess the broader impact of recent oil price developments on medium-term inflation trends and to avoid spillovers to inflation expectations and wage formation.","Against the background of recent oil price developments, it is crucial to recall that forecasts and projections are based on technical assumptions, especially for oil prices and exchange rates. On the basis of information available in mid-November, at the time the December 2014 Eurosystem staff macroeconomic projections for the euro area were finalised, annual HICP inflation was foreseen to reach 0.5% in 2014, 0.7% in 2015 and 1.3% in 2016. In comparison with the September 2014 ECB staff macroeconomic projections, they have been revised significantly downwards. These revisions reflect mainly lower oil prices in euro terms and the impact of the downwardly revised outlook for growth, but they do not yet incorporate the fall in oil prices over the past few weeks following the cut-off date for the projections. Over the coming months, annual HICP inflation rates could experience renewed downward movements, given the recent further decline in oil prices.","The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate and energy price developments, and the pass-through of our monetary policy measures. We will be particularly vigilant as regards the broader impact of recent oil price developments on medium-term inflation trends in the euro area.","Turning to the monetary analysis, data for October 2014 support the assessment of subdued underlying growth in broad money (M3), with the annual growth rate standing at 2.5% in October, unchanged from September. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 6.2% in October.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -1.6% in October, after -1.8% in September, showing a gradual recovery from a trough of -3.2% in February. On average over recent months, net redemptions have moderated from the historically high levels recorded a year ago. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.6% in October, after 0.5% in September. The monetary policy measures in place and the completion of the ECB’s comprehensive assessment should support a further stabilisation of credit flows.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to closely monitor the risks to the outlook for price developments over the medium term and to be prepared to provide further monetary policy accommodation, if needed.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms need to gain momentum in several countries. It is crucial that structural reforms be implemented credibly and effectively as this will raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery. Fiscal policies should support the economic recovery, while ensuring debt sustainability in compliance with the Stability and Growth Pact, which remains the anchor for confidence. All countries should use the available scope for a more growth-friendly composition of fiscal policies. The Investment Plan for Europe which the European Commission announced on 26 November 2014 will also support the recovery.","We are now at your disposal for questions.","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. I would also like to take this opportunity to welcome Lithuania as the nineteenth country to adopt the euro as its currency. Accordingly, Mr Vasiliauskas, the Chairman of the Board of Lietuvos bankas, became a member of the Governing Council on 1 January 2015. The accession of Lithuania to the euro area on 1 January 2015 triggered a system under which NCB governors take turns holding voting rights on the Governing Council. The details on this rotation system are available on the ECB’s website. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we conducted a thorough reassessment of the outlook for price developments and of the monetary stimulus achieved. As a result, the Governing Council took the following decisions:","First, it decided to launch an expanded asset purchase programme, encompassing the existing purchase programmes for asset-backed securities and covered bonds. Under this expanded programme, the combined monthly purchases of public and private sector securities will amount to €60 billion. They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. In March 2015 the Eurosystem will start to purchase euro-denominated investment-grade securities issued by euro area governments and agencies and European institutions in the secondary market. The purchases of securities issued by euro area governments and agencies will be based on the Eurosystem NCBs’ shares in the ECB’s capital key. Some additional eligibility criteria will be applied in the case of countries under an EU/IMF adjustment programme.","Second, the Governing Council decided to change the pricing of the six remaining targeted longer-term refinancing operations (TLTROs). Accordingly , the interest rate applicable to future TLTRO operations will be equal to the rate on the Eurosystem’s main refinancing operations prevailing at the time when each TLTRO is conducted, thereby removing the 10 basis point spread over the MRO rate that applied to the first two TLTROs.","Third, in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.","As regards the additional asset purchases, the Governing Council retains control over all the design features of the programme and the ECB will coordinate the purchases, thereby safeguarding the singleness of the Eurosystem’s monetary policy. The Eurosystem will make use of decentralised implementation to mobilise its resources. With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing.","Separate press releases with more detailed information on the expanded asset purchase programme and the pricing of the TLTROs will be published this afternoon at 3.30 p.m.","Today’s monetary policy decision on additional asset purchases was taken to counter two unfavourable developments. First, inflation dynamics have continued to be weaker than expected. While the sharp fall in oil prices over recent months remains the dominant factor driving current headline inflation, the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments. This assessment is underpinned by a further fall in market-based measures of inflation expectations over all horizons and the fact that most indicators of actual or expected inflation stand at, or close to, their historical lows. At the same time, economic slack in the euro area remains sizeable and money and credit developments continue to be subdued. Second, while the monetary policy measures adopted between June and September last year resulted in a material improvement in terms of financial market prices, this was not the case for the quantitative results. As a consequence, the prevailing degree of monetary accommodation was insufficient to adequately address heightened risks of too prolonged a period of low inflation. Thus, today the adoption of further balance sheet measures has become warranted to achieve our price stability objective, given that the key ECB interest rates have reached their lower bound.","Looking ahead, today’s measures will decisively underpin the firm anchoring of medium to long-term inflation expectations. The sizeable increase in our balance sheet will further ease the monetary policy stance. In particular, financing conditions for firms and households in the euro area will continue to improve. Moreover, today’s decisions will support our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. Taken together, these factors should strengthen demand, increase capacity utilisation and support money and credit growth, and thereby contribute to a return of inflation rates towards 2%.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the third quarter of 2014. The latest data and survey evidence point to continued moderate growth at the turn of the year. Looking ahead, recent declines in oil prices have strengthened the basis for the economic recovery to gain momentum. Lower oil prices should support households’ real disposable income and corporate profitability. Domestic demand should also be further supported by our monetary policy measures, the ongoing improvements in financial conditions and the progress made in fiscal consolidation and structural reforms. Furthermore, demand for exports should benefit from the global recovery. However, the euro area recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments in the public and private sectors.","The risks surrounding the economic outlook for the euro area remain on the downside, but should have diminished after today’s monetary policy decisions and the continued fall in oil prices over recent weeks.","According to Eurostat, euro area annual HICP inflation was -0.2% in December 2014, after 0.3% in November. This decline mainly reflects a sharp fall in energy price inflation and, to a lesser extent, a decline in the annual rate of change in food prices. On the basis of current information and prevailing futures prices for oil, annual HICP inflation is expected to remain very low or negative in the months ahead. Such low inflation rates are unavoidable in the short term, given the recent very sharp fall in oil prices and assuming that no significant correction will take place in the next few months. Supported by our monetary policy measures, the expected recovery in demand and the assumption of a gradual increase in oil prices in the period ahead, inflation rates are expected to increase gradually later in 2015 and in 2016.","The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on geopolitical developments, exchange rate and energy price developments, and the pass-through of our monetary policy measures.","Turning to the monetary analysis, recent data indicate a pick-up in underlying growth in broad money (M3), although it remains at low levels. The annual growth rate of M3 increased to 3.1% in November 2014, up from 2.5% in October and a trough of 0.8% in April 2014. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 6.9% in November.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) remained weak at -1.3% in November 2014, compared with -1.6% in October, while continuing its gradual recovery from a trough of -3.2% in February 2014. On average over recent months, net redemptions have moderated from the historically high levels recorded a year ago and net lending flows turned slightly positive in November. In this respect, the January 2015 bank lending survey indicates a further net easing of credit standards in the fourth quarter of 2014, with cross-country disparities decreasing in parallel with an increase in net demand for loans across all loan categories. Banks expect that these dynamics will continue in early 2015. Despite these improvements, lending to non-financial corporations remains weak and continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.7% in November, after 0.6% in October. Our monetary policy measures should support a further improvement in credit flows.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for further monetary policy accommodation. All our monetary policy measures should provide support to the euro area recovery and bring inflation rates closer to levels below, but close to, 2%.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to increase investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms needs to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery. Fiscal policies should support the economic recovery, while ensuring debt sustainability in compliance with the Stability and Growth Pact, which remains the anchor for confidence. All countries should use the available scope for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference, here, in Nicosia. I would like to thank Governor Georghadji for her kind hospitality and to express our special gratitude to her staff for the excellent organisation of today’s meeting of the Governing Council.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. As regards non-standard monetary policy measures, the focus is now on implementation.","Following up on our decisions of 22 January 2015, we will, on 9 March 2015, start purchasing euro-denominated public sector securities in the secondary market. We will also continue purchasing asset-backed securities and covered bonds, which we started last year. As previously stated, the combined monthly purchases of public and private sector securities will amount to €60 billion. They are intended to be carried out until the end of September 2016 and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. Further information on certain implementation aspects of the public sector purchase programme will be released at 3.30 p.m. CET on the ECB’s website.","We have already seen a significant number of positive effects from these monetary policy decisions. Financial market conditions and the cost of external finance for the private economy have eased further, also following our previous monetary policy measures. In particular, borrowing conditions for firms and households have improved considerably. Moreover, money and credit dynamics have been firming.","The substantial additional easing of our monetary policy stance supports and reinforces the emergence of more favourable developments for the euro area economy. In an environment of improving business and consumer sentiment, the transmission of our measures to the real economy will strengthen, contributing to a further improvement in the outlook for economic growth and a reduction in economic slack. Thereby, our measures will contribute to a sustained return of inflation towards a level below, but close to, 2% over the medium term and underpin the firm anchoring of medium to long-term inflation expectations.","Let me now explain our assessment in greater detail, starting with the economic analysis. According to Eurostat’s flash estimate, real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014, which was somewhat higher than previously expected. The latest economic data and, particularly, survey evidence available up to February point to some further improvements in economic activity at the beginning of this year. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. The low level of the price of oil should continue to support households’ real disposable income and corporate profitability. Domestic demand should also be further supported by our monetary policy measures leading to ongoing improvements in financial conditions, as well as by the progress made in fiscal consolidation and structural reforms. Moreover, demand for euro area exports should benefit from improvements in price competitiveness and from the global recovery. However, the euro area recovery is likely to continue to be dampened by the necessary balance sheet adjustments in various sectors and the rather slow pace of implementation of structural reforms.","This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017. Compared with the December 2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth in 2015 and 2016 have been revised upwards, reflecting the favourable impact of lower oil prices, the weaker effective exchange rate of the euro and the impact of the ECB’s recent monetary policy measures.","The risks surrounding the economic outlook for the euro area remain on the downside but have diminished following recent monetary policy decisions and the fall in oil prices.","According to Eurostat’s flash estimate, euro area annual HICP inflation was -0.3 % in February 2015, after -0.6% in January. The negative outcomes largely reflect the impact of the significant fall in oil prices since July 2014. On the basis of current information and prevailing futures prices for oil, annual HICP inflation is expected to remain very low or negative in the months ahead. Supported by the favourable impact of our recent monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption of somewhat higher oil prices in the years ahead, inflation rates are expected to start increasing gradually later in 2015.","This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.0% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the December 2014 Eurosystem staff macroeconomic projections, the inflation projection for 2015 has been revised downwards, mainly reflecting the fall in oil prices. In contrast, the inflation projection for 2016 has been revised slightly upwards, also reflecting the expected impact of our recent monetary policy measures.","The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, geopolitical developments, and exchange rate and energy price developments.","When discussing the economic outlook and the new projections, the Governing Council acknowledged that the staff projections are conditional on the full implementation of all our policy measures. Moreover, the March staff projections extend the horizon to 2017. In this context, the Governing Council again stressed that the degree of forecast uncertainty tends to increase with the length of the projection horizon.","Turning to the monetary analysis, recent data confirm the gradual increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 4.1% in January 2015, up from 3.8% in December 2014. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.0% in January.","The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.9% in January 2015, after -1.1% in December 2014, continuing its gradual recovery from a trough of -3.2% in February 2014. The three-month cumulated net lending flows were positive in January for the second consecutive month, compared with sizeable net redemptions still recorded a year ago. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued and continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 0.9% in January 2015, after 0.8% in December 2014. Our recent monetary policy measures should support a further improvement in credit flows.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the appropriateness of the Governing Council’s recent decisions. The determined implementation of all our monetary policy measures will provide support to the euro area recovery and bring inflation rates towards levels below, but close to, 2% in the medium term.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas need to contribute decisively. Given high structural unemployment and low potential output growth in the euro area, a cyclical recovery along the lines of the March ECB staff projections is no grounds for complacency. In particular, in order to increase investment, boost job creation and raise productivity, both the decisive implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively, as this will not only increase the future sustainable growth of the euro area but also raise expectations of higher incomes and encourage firms to increase investment today, bringing forward the economic recovery. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Stability and Growth Pact is key for confidence in our fiscal framework. In view of the necessity to step up structural reform efforts in a number of countries, it is also important that the macroeconomic imbalance procedure is implemented effectively in order to address the excessive imbalances as identified in individual Member States.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.","As regards non-standard monetary policy measures, on 9 March we started purchasing euro-denominated public sector securities as part of our expanded asset purchase programme, which also comprises purchases of asset-backed securities and covered bonds. Purchases are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through unexpected outcomes in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.","The implementation of our asset purchase programmes is proceeding smoothly, with volumes in line with the announced figure of €60 billion of securities per month. In addition, there is clear evidence that the monetary policy measures we have put in place are effective. Financial market conditions and the cost of external finance for the private sector have eased considerably over the past months and borrowing conditions for firms and households have improved notably, with a pick-up in the demand for credit.","Looking ahead, our focus will be on the full implementation of our monetary policy measures. Through these measures, we will contribute to a further improvement in the economic outlook, a reduction in economic slack and a recovery in money and credit growth. Together, such developments will lead to a sustained return of inflation towards a level below, but close to, 2% over the medium term and will underpin the firm anchoring of medium to long-term inflation expectations.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014. Domestic demand, especially private consumption, continued to be the main driver behind the ongoing recovery. The latest economic indicators, including survey data up to March, suggest that the euro area economy has gained further momentum since the end of 2014. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. Domestic demand should be further supported by ongoing improvements in financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the lower level of the price of oil should continue to support households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, the euro area recovery is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","While remaining on the downside, the risks surrounding the economic outlook for the euro area have become more balanced on account of the recent monetary policy decisions, the fall in oil prices and the lower euro exchange rate.","According to Eurostat’s flash estimate, euro area annual HICP inflation was -0.1% in March 2015, up from -0.3% in February and -0.6% in January. This pattern largely reflects an increase in oil prices in euro terms since mid-January. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain very low or still negative in the months ahead. Supported by the favourable impact of our monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption of base effects and somewhat higher oil prices in the years ahead, inflation rates are expected to increase later in 2015 and to pick up further during 2016 and 2017.","The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, exchange rate and energy price developments.","Turning to the monetary analysis, recent data confirm the gradual increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 4.0% in February 2015, up from 3.7% in January. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.1% in February.","Loan dynamics also gradually improved further. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.4% in February, after -0.9% in January, continuing its gradual recovery from a trough of -3.2% in February 2014. In this respect, the April 2015 bank lending survey confirms that improvements in lending conditions support a further recovery in loan growth, in particular for firms. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued and continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 1.0% in February 2015, after 0.9% in January. The monetary policy measures we have put in place should support further improvements both in borrowing costs for firms and households and in credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to implement firmly the Governing Council’s recent decisions. The full implementation of all our monetary policy measures will provide the necessary support to the euro area recovery and bring inflation rates towards levels below, but close to, 2% in the medium term.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective supply-side measures. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms will not only lead to higher sustainable growth in the euro area but will also raise expectations of permanently higher incomes and encourage both households to expand consumption and firms to increase investment today, thus reinforcing the current economic recovery. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework. In view of the necessity to step up structural reform efforts in a number of countries, it is also important that the macroeconomic imbalance procedure is implemented effectively in order to address the excessive imbalances as identified in individual Member States.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.","Regarding non-standard monetary policy measures, the asset purchase programmes are proceeding well. As explained on previous occasions, our asset purchases of €60 billion per month are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through fluctuations in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.","Our monetary policy measures have contributed to a broad-based easing in financial conditions, a recovery in inflation expectations and more favourable borrowing conditions for firms and households. The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion. The full implementation of all our monetary policy measures will provide the necessary support to the euro area economy, lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term, and underpin the firm anchoring of medium to long-term inflation expectations.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2015, real GDP in the euro area rose by 0.4%, quarter on quarter, after 0.3% in the last quarter of 2014. In recent quarters, domestic demand and, particularly, private consumption were the main drivers behind the ongoing recovery. The latest survey data to May remain consistent with a continuation of the modest growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the low level of the price of oil should continue to support households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","This assessment is also broadly reflected in the June 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.0% in 2017. Compared with the March 2015 ECB staff macroeconomic projections, the projections for real GDP growth over the projection horizon remain virtually unchanged.","While remaining on the downside, the risks surrounding the economic outlook for the euro area have become more balanced on account of our monetary policy decisions and oil price and exchange rate developments.","Inflation bottomed out at the beginning of the year. According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.3% in May 2015, up from 0.0% in April and compared with -0.6% in January. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain low in the months ahead and to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Supported by the expected economic recovery, the impact of the lower euro exchange rate and the assumption embedded in oil futures markets of somewhat higher oil prices in the years ahead, inflation rates are expected to pick up further during 2016 and 2017.","This assessment is also broadly reflected in the June 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the March 2015 ECB staff macroeconomic projections, the inflation projections have been revised upwards for 2015 and remain unchanged for 2016 and 2017.","The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, exchange rate and energy price developments. We acknowledge that the staff projections are conditional on the full implementation of all our monetary policy measures in place. We also take into account that the degree of forecast uncertainty tends to increase with the length of the projection horizon.","Turning to the monetary analysis, recent data confirm the increase in underlying growth in broad money (M3). The annual growth rate of M3 increased to 5.3% in April 2015, up from 4.6% in March. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 10.5% in April.","Loan dynamics gradually improved further. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -0.1% in April, after -0.2% in March, continuing its gradual recovery from a trough of -3.2% in February 2014. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased further to 1.3% in April 2015, after 1.1% in March. The monetary policy measures we have put in place will support further improvements both in borrowing costs for firms and households and in credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to maintain a steady monetary policy course, firmly implementing the Governing Council’s monetary policy decisions. The full implementation of all our monetary policy measures will provide the necessary support to the economic recovery in the euro area and lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes. Therefore, it will encourage both households to expand consumption and firms to increase investment today, thus reinforcing the current cyclical economic recovery. As concerns fiscal developments, reflecting mainly the cyclical recovery and the low level of interest rates, the aggregate euro area general government deficit ratio is projected to decline gradually from 2.1% of GDP this year to 1.5% in 2017. The general government debt ratio is projected to decline gradually from 91.5% of GDP this year to 88.4% in 2017. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged.","Regarding non-standard monetary policy measures, the asset purchase programmes continue to proceed smoothly. As explained on previous occasions, our monthly asset purchases of €60 billion are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation and the medium-term outlook for price stability.","All in all, the information that has become available since the Governing Council meeting in early June has been broadly in line with our expectations. Recent developments in financial markets, which partly reflect greater uncertainty, have not changed the Governing Council’s assessment of a broadening of the euro area’s economic recovery and a gradual increase in inflation rates over the coming years. The ECB’s monetary policy stance remains accommodative and market-based inflation expectations have, on balance, stabilised or recovered further since our meeting in early June. The latest information also remains consistent with a continued pass-through of our monetary policy measures to the cost and availability of credit for firms and households. Our measures thereby continue to contribute to economic growth, a reduction in economic slack, and money and credit expansion. The full implementation of all our monetary policy measures will lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term, and will underpin the firm anchoring of medium to long-term inflation expectations.","Looking ahead, we will continue to closely monitor the situation in financial markets, as well as the potential implications for the monetary policy stance and for the outlook for price stability. If any factors were to lead to an unwarranted tightening of monetary policy, or if the outlook for price stability were to materially change, the Governing Council would respond to such a situation by using all the instruments available within its mandate.","Let me now explain our assessment of the available information in greater detail, starting with the economic analysis. Euro area quarterly real GDP growth was confirmed at 0.4% in the first quarter of 2015, supported by contributions from private consumption and investment. The latest survey data, available up to June, remain consistent with a continuation of the moderate growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden further. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the recent decline in oil prices should provide additional support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, the ongoing slowdown in emerging market economies continues to weigh on the global outlook and economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","The downside risks surrounding the economic outlook for the euro area have generally been contained as a result of our monetary policy decisions, as well as oil price and exchange rate developments.","Inflation bottomed out at the beginning of the year and has moved back into positive territory in recent months. According to Eurostat, euro area annual HICP inflation was 0.2% in June 2015, slightly down from 0.3% in May. On the basis of the information available and current oil futures prices, annual HICP inflation is expected to remain low in the months ahead and to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Supported by the expected economic recovery, the impact of the lower euro exchange rate and the assumption embedded in oil futures markets of somewhat higher oil prices in the years ahead, inflation rates are expected to pick up further during 2016 and 2017.","The Governing Council will continue to monitor closely the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, as well as on geopolitical, energy and exchange rate developments.","Turning to the monetary analysis, recent data confirm robust growth in broad money (M3). The annual growth rate of M3 was 5.0% in May 2015, compared with 5.3% in April. Annual growth in M3 continues to be strongly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.2% in May.","Loan dynamics continued to improve. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.1% in May, up from -0.1% in April, continuing its gradual recovery from a trough of -3.2% in February 2014. This is consistent with the positive evidence from the bank lending survey for the second quarter of 2015. Banks reported a continued net easing of credit standards on loans to enterprises which was stronger than expected in the previous survey round. Net demand for loans to enterprises increased further, supported by demand for credit related to fixed investment. Fragmentation in terms of credit demand in individual countries decreased and the targeted longer-term refinancing operations helped to improve the terms and conditions for credit supply. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.4% in May 2015, after 1.3% in April. Overall, the monetary policy measures we have put in place since June 2014 provide clear support for improvements both in borrowing conditions for firms and households and in credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need to maintain a steady monetary policy course, firmly implementing the Governing Council’s monetary policy decisions. The full implementation of all our monetary policy measures will provide the necessary support to the economic recovery in the euro area and lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective  structural policies. In particular, in order to increase investment, boost job creation and raise productivity, both the implementation of  product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. A swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is key for confidence in our fiscal framework.","We are now at your disposal for questions.","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. As usual, let me start with the decisions taken.","Based on our regular economic and monetary analysis, and in line with our forward guidance, the Governing Council decided to keep the key ECB interest rates unchanged.","Our asset purchase programme continues to proceed smoothly. Regarding non-standard monetary policy measures, following the announced review of the public sector purchase programme’s issue share limit after the first six months of purchases, the Governing Council decided to increase the issue share limit from the initial limit of 25% to 33%, subject to a case-by-case verification that this would not create a situation whereby the Eurosystem would have blocking minority power, in which case the issue share limit would remain at 25%.","Underlying our monetary policy assessment was a review of recent data, new staff macroeconomic projections and an interim evaluation of recent market fluctuations. The information available indicates a continued though somewhat weaker economic recovery and a slower increase in inflation rates compared with earlier expectations. More recently, renewed downside risks have emerged to the outlook for growth and inflation. However, owing to sharp fluctuations in financial and commodity markets, the Governing Council judged it premature to conclude on whether these developments could have a lasting impact on the outlook for prices and on the achievement of a sustainable path of inflation towards our medium-term aim, or whether they should be considered to be mainly transitory.","Accordingly, the Governing Council will closely monitor all relevant incoming information. It emphasises its willingness and ability to act, if warranted, by using all the instruments available within its mandate and, in particular, recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting the size, composition and duration of the programme.","In the meantime, we will fully implement our monthly asset purchases of €60 billion. These purchases have a favourable impact on the cost and availability of credit for firms and households. They are intended to run until the end of September 2016, or beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.","Let me now explain our assessment of the available information in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.3% in the second quarter of 2015, which was somewhat lower than previously expected. The latest survey indicators point to a broadly similar pace of real GDP growth in the second half of this year. Overall, we expect the economic recovery to continue, albeit at a somewhat weaker pace than earlier expected, reflecting in particular the slowdown in emerging market economies, which is weighing on global growth and foreign demand for euro area exports. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the decline in oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","This assessment is also broadly reflected in the September 2015 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.4% in 2015, 1.7% in 2016 and 1.8% in 2017. Compared with the June 2015 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down, primarily due to lower external demand owing to weaker growth in emerging markets.","The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties related to the external environment. Notably, current developments in emerging market economies have the potential to further affect global growth adversely via trade and confidence effects.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.2% in August 2015, unchanged from June and July. Compared with the previous month, this reflects a further decline in energy price inflation, compensated for by higher price increases for food and industrial goods. On the basis of the information available and current oil futures prices, annual HICP inflation rates will remain very low in the near term. Annual HICP inflation is expected to rise towards the end of the year, also on account of base effects associated with the fall in oil prices in late 2014. Inflation rates are foreseen to pick up further during 2016 and 2017, supported by the expected economic recovery, the pass-through of past declines in the euro exchange rate and the assumption of somewhat higher oil prices in the years ahead as currently reflected in oil futures markets. However, this increase in annual inflation rates is currently expected to materialise somewhat more slowly than anticipated thus far.","This assessment is also broadly reflected in the September 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2015, 1.1% in 2016 and 1.7% in 2017. In comparison with the June 2015 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down, largely owing to lower oil prices. Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September staff inflation projections.","In this context, the Governing Council will closely monitor the risks to the outlook for price developments over the medium term. We will focus in particular on the pass-through of our monetary policy measures, as well as on global economic, financial, commodity price and exchange rate developments.","Turning to the monetary analysis, recent data confirm robust growth in broad money (M3). The annual growth rate of M3 was 5.3% in July 2015, compared with 4.9% in June. Annual growth in M3 continues to be increasingly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 12.1% in July, compared with 11.7% in June.","Loan dynamics continued to improve. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.9% in July, up from 0.2% in June, continuing its gradual recovery since the beginning of 2014. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued. They continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.9% in July 2015, after 1.7% in June. Overall, the monetary policy measures we have put in place since June 2014 provide clear support for improvements both in borrowing conditions for firms and households and in credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council’s monetary policy decisions and to monitor closely all relevant incoming information as concerns their impact on the medium-term outlook for price stability.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. Further product and labour market reforms, and particularly actions to improve the business environment, including an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of these reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the benefits of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Pact is crucial for confidence in our fiscal framework.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Bonnici for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","Based on our regular economic and monetary analyses, and in line with our forward guidance, the Governing Council decided to keep the key ECB interest rates unchanged. As regards non-standard monetary policy measures, the asset purchases are proceeding smoothly and continue to have a favourable impact on the cost and availability of credit for firms and households.","The Governing Council has been closely monitoring incoming information since our meeting in early September. While euro area domestic demand remains resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation. Most notably, the strength and persistence of the factors that are currently slowing the return of inflation to levels below, but close to, 2% in the medium term require thorough analysis. In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available. The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation. In particular, the Governing Council recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration. In the meantime, we will continue to fully implement the monthly asset purchases of €60 billion. These purchases are intended to run until the end of September 2016, or beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.","Let me now explain our assessment of the available information in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in the second quarter of 2015, following a rise of 0.5% in the previous quarter. The outcome for the second quarter reflected positive contributions from both domestic demand and net exports. The most recent survey indicators point to a broadly similar pace of real GDP growth in the third quarter of the year. Overall, we expect the economic recovery to continue, albeit dampened, in particular, by weaker than expected foreign demand. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the decline in oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. However, the recovery in domestic demand in the euro area continues to be hampered by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies, which have the potential to further weigh on global growth and foreign demand for euro area exports. Increased uncertainty has recently manifested itself in financial market developments, which may have negative repercussions for euro area domestic demand.","According to Eurostat, euro area annual HICP inflation was -0.1% in September 2015, down from 0.1% in August. Compared with the previous month, this mainly reflects a further decline in energy price inflation. On the basis of the information available and current oil futures prices, annual HICP inflation rates will remain very low in the near term. Annual HICP inflation is expected to rise at the turn of the year, also on account of base effects associated with the fall in oil prices in late 2014. Inflation rates are foreseen to pick up further during 2016 and 2017, supported by the expected economic recovery, the pass-through of past declines in the euro exchange rate and the assumption of somewhat higher oil prices in the years ahead as currently reflected in oil futures markets. However, there are risks stemming from the economic outlook and from financial and commodity market developments which could further slow down the gradual increase in inflation rates towards levels closer to 2%. These risks are being closely monitored by the Governing Council.","Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), notwithstanding a decline in the annual growth rate of M3 to 4.8% in August 2015 from 5.3% in July. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.4% in August, after 12.2% in July.","Loan dynamics continued to improve. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.4% in August, up from 0.3% in July, pursuing its gradual recovery since the beginning of 2014. Despite these improvements, developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.0% in August 2015, compared with 0.9% in July. The euro area bank lending survey for the third quarter of 2015 confirms the increase in demand for bank loans, supported by the general level of interest rates, financing needs for investment purposes and housing market prospects. In addition, credit standards eased further on loans to enterprises, notably due to increasing competitive pressures in retail banking, while tightening somewhat on loans to households for house purchase. Overall, the monetary policy measures we have put in place since June 2014 provide clear support for improvements both in borrowing conditions for firms and households and in credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council’s monetary policy decisions and to monitor closely all relevant incoming information as concerns their impact on the medium-term outlook for price stability.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the benefits of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery, while remaining in compliance with the EU’s fiscal rules. Full and consistent implementation of the Stability and Growth Pact is crucial for confidence in our fiscal framework. At the same time, all countries should strive for a growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we today conducted a thorough assessment of the strength and persistence of the factors that are currently slowing the return of inflation to levels below, but close to, 2% in the medium term and re-examined the degree of monetary accommodation. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective:","First, as regards the key ECB interest rates, we decided to lower the interest rate on the deposit facility by 10 basis points to -0.30%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.05% and 0.30% respectively.","Second, as regards non-standard monetary policy measures, we decided to extend the asset purchase programme (APP). The monthly purchases of €60 billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.","Third, we decided to reinvest the principal payments on the securities purchased under the APP as they mature, for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance. The technical details will be communicated in due time.","Fourth, we decided to include, in the public sector purchase programme, euro-denominated marketable debt instruments issued by regional and local governments located in the euro area in the list of assets that are eligible for regular purchases by the respective national central banks.","Fifth, we decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017.","Today’s decisions were taken in order to secure a return of inflation rates towards levels that are below, but close to, 2% and thereby to anchor medium-term inflation expectations. The latest staff projections incorporate the favourable financial market developments following our last monetary policy meeting. They still indicate continued downside risks to the inflation outlook and slightly weaker inflation dynamics than previously expected. This follows downward revisions in earlier projection exercises. The persistence of low inflation rates reflects sizeable economic slack weighing on domestic price pressures and headwinds from the external environment.","Our new measures will ensure accommodative financial conditions and further strengthen the substantial easing impact of the measures taken since June 2014, which have had significant positive effects on financing conditions, credit and the real economy. Today’s decisions also reinforce the momentum of the euro area’s economic recovery and strengthen its resilience against recent global economic shocks. The Governing Council will closely monitor the evolution in the outlook for price stability and, if warranted, is willing and able to act by using all the instruments available within its mandate in order to maintain an appropriate degree of monetary accommodation. In particular, the Governing Council recalls that the APP provides sufficient flexibility in terms of adjusting its size, composition and duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2015, following a rise of 0.4% in the previous quarter, most likely on account of a continued positive contribution from consumption alongside more muted developments in investment and exports. The most recent survey indicators point to ongoing real GDP growth in the final quarter of the year. Looking ahead, we expect the economic recovery to proceed. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the earlier progress made with fiscal consolidation and structural reforms. Moreover, low oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. In addition, government expenditure is likely to increase in some parts of the euro area, reflecting measures in support of refugees. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets and moderate global trade, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","This outlook is broadly reflected in the December 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.7% in 2016 and 1.9% in 2017. Compared with the September 2015 ECB staff macroeconomic projections, the prospects for real GDP growth are broadly unchanged.","The risks to the euro area growth outlook relate in particular to the heightened uncertainties regarding developments in the global economy as well as to broader geopolitical risks. These risks have the potential to weigh on global growth and foreign demand for euro area exports and on confidence more widely.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.1% in November 2015, unchanged from October but lower than expected. This reflected somewhat weaker price increases in services and industrial goods, mainly compensated for by a less negative contribution from energy prices. On the basis of the information available and current oil futures prices, annual HICP inflation rates are expected to rise at the turn of the year, mainly on account of base effects associated with the fall in oil prices in late 2014. During 2016 and 2017, inflation rates are foreseen to pick up further, supported by our previous monetary policy measures – and supplemented by those announced today – the expected economic recovery, and the pass-through of past declines in the euro exchange rate. The Governing Council will closely monitor the evolution of inflation rates over the period ahead.","This broad pattern is also reflected in the December 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2015, 1.0% in 2016 and 1.6% in 2017. In comparison with the September 2015 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised down slightly.","Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), with the annual rate of growth of M3 increasing to 5.3% in October 2015 from 4.9% in September. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.8% in October, after 11.7% in September.","Loan dynamics continued the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.6% in October, up from 0.1% in September. Despite these improvements, developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.2% in October, compared with 1.1% in September. Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for both firms and households and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for further monetary stimulus in order to secure a return of inflation rates towards levels that are below, but close to, 2%.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the beneficial effects of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact is crucial for confidence in our fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","Ladies and gentlemen, first of all let me wish you a Happy New Year. 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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, and after the recalibration of our monetary policy measures last month, we decided to keep the key ECB interest rates unchanged and we expect them to remain at present or lower levels for an extended period of time. Regarding our non-standard monetary policy measures, the asset purchases are proceeding smoothly and continue to have a favourable impact on the cost and availability of credit for firms and households.","Taking stock of the evidence available at the beginning of 2016, it is clear that the monetary policy measures that we have adopted since mid-2014 are working. As a result, developments in the real economy, credit provision and financing conditions have improved and have strengthened the euro area’s resilience to recent global economic shocks. The decisions taken in early December to extend our monthly net asset purchases of €60 billion to at least the end of March 2017, and to reinvest the principal payments on maturing securities for as long as necessary, were fully appropriate. They will result in a significant addition of liquidity to the banking system and will strengthen our forward guidance on interest rates.","Yet, as we start the new year, downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks. In this environment, euro area inflation dynamics also continue to be weaker than expected. It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March, when the new staff macroeconomic projections become available which will also cover the year 2018. In the meantime, work will be carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP growth was confirmed at 0.3%, quarter on quarter, in the third quarter of 2015, supported mainly by private consumption, while being dampened by a negative contribution from net exports. The most recent survey indicators, available up to December, point to ongoing real GDP growth momentum in the fourth quarter of last year. Looking ahead, we expect the economic recovery to proceed. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the earlier progress made with fiscal consolidation and structural reforms. Moreover, the renewed fall in oil prices should provide additional support for households’ real disposable income and corporate profitability and, therefore, for private consumption and investment. In addition, the fiscal stance in the euro area is becoming slightly expansionary, reflecting in particular measures in support of refugees. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","The risks to the euro area growth outlook remain on the downside and relate in particular to the heightened uncertainties regarding developments in the global economy, as well as to broader geopolitical risks. These risks have the potential to weigh on global growth and foreign demand for euro area exports and on confidence more widely.","Euro area annual HICP inflation was 0.2% in December 2015, compared with 0.1% in November. The December outcome was lower than expected, mainly reflecting the renewed sharp decline in oil prices, as well as lower food price and services price inflation. On the basis of current oil futures prices, which are well below the level observed a few weeks ago, the expected path of annual HICP inflation in 2016 is now significantly lower compared with the outlook in early December. Inflation rates are currently expected to remain at very low or negative levels in the coming months and to pick up only later in 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should continue to recover, but risks of second-round effects should be monitored closely. A more comprehensive picture of the impact of oil prices and other external and domestic factors on the outlook for HICP inflation will become available in the March 2016 ECB staff macroeconomic projections, which will also cover the year 2018.","Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), with the annual rate of growth of M3 standing at 5.1% in November 2015, after 5.3% in October. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.2% in November, after 11.8% in October.","Loan dynamics continued the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.9% in November 2015, up from 0.6% in October. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.4% in November, compared with 1.2% in October.","The bank lending survey for the euro area for the fourth quarter of 2015 points to further improvements in demand for bank loans, supported by the low level of interest rates, financing needs for investment purposes and housing market prospects. Credit standards eased further on loans to enterprises, notably owing to increasing competitive pressures in retail banking, and reverted to a net easing on loans to households for house purchase. Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for both firms and households, as well as credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the effectiveness of the monetary policy measures in place and the need to review and possibly reconsider our monetary policy stance at our next meeting in early March in order to secure a return of inflation rates towards levels below, but close to, 2%.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the beneficial effects of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we have conducted a thorough review of the monetary policy stance, in which we also took into account the new macroeconomic projections by our staff extending into the year 2018. As a result, the Governing Council has decided on a set of measures in the pursuit of its price stability objective. This comprehensive package will exploit the synergies between the different instruments and has been calibrated to further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2%.","First, as regards the key ECB interest rates, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 5 basis points to 0.00% and the rate on the marginal lending facility by 5 basis points to 0.25%. The rate on the deposit facility was lowered by 10 basis points to -0.40%.","Second, we decided to expand the monthly purchases under our asset purchase programme from €60 billion at present to €80 billion. They are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. To ensure the continued smooth implementation of our asset purchases, we also decided to increase the issuer and issue share limits for the purchases of securities issued by eligible international organisations and multilateral development banks from 33% to 50%.","Third, we decided to include investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area in the list of assets that are eligible for regular purchases under a new corporate sector purchase programme. This will further strengthen the pass-through of our asset purchases to the financing conditions of the real economy. Purchases under the new programme will start towards the end of the second quarter of this year.","Fourth, we decided to launch a new series of four targeted longer-term refinancing operations (TLTRO II), starting in June 2016, each with a maturity of four years. These new operations will reinforce the ECB’s accommodative monetary policy stance and will strengthen the transmission of monetary policy by further incentivising bank lending to the real economy. Counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 31 January 2016. The interest rate under TLTRO II will be fixed over the life of each operation, at the rate on the Eurosystem’s main refinancing operations prevailing at the time of take-up. For banks whose net lending exceeds a benchmark, the rate applied to the TLTRO II will be lower, and can be as low as the interest rate on the deposit facility prevailing at the time of take-up. There will be no requirement for mandatory early repayments under TLTRO II, and switches from TLTRO I will be allowed.","Finally, looking ahead, taking into account the current outlook for price stability, the Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.","Separate press releases with further details of the measures taken by the Governing Council will be published this afternoon at 15:30 CET.","Adding to the measures taken since June 2014, with today’s comprehensive package of monetary policy decisions we are providing substantial monetary stimulus to counteract heightened risks to the ECB’s price stability objective. While very low or even negative inflation rates are unavoidable over the next few months, as a result of movements in oil prices, it is crucial to avoid second-round effects by securing the return of inflation to levels below, but close to, 2% without undue delay. The Governing Council will continue to monitor very closely the evolution of the outlook for price stability over the period ahead.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP growth was confirmed at 0.3%, quarter on quarter, in the fourth quarter of 2015, supported by domestic demand, while being dampened by a negative contribution from net exports. The most recent survey data point to weaker than expected growth momentum at the beginning of this year. Looking ahead, we expect the economic recovery to proceed at a moderate pace. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by continued employment gains benefiting from past structural reforms. Moreover, the low price of oil should provide additional support for households’ real disposable income and private consumption, as well as corporate profitability and investment. In addition, the fiscal stance in the euro area is slightly expansionary, partly reflecting measures in support of refugees. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.","This outlook is broadly reflected in the March 2016 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.4% in 2016, 1.7% in 2017 and 1.8% in 2018. Compared with the December 2015 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised slightly down, mainly reflecting the weakened growth prospects for the global economy.","The risks to the euro area growth outlook remain tilted to the downside. They relate in particular to the heightened uncertainties regarding developments in the global economy, as well as to broader geopolitical risks.","According to Eurostat’s flash estimate, euro area annual HICP inflation was -0.2% in February 2016, compared with 0.3% in January. All main HICP components contributed to this decline. Looking ahead, on the basis of current futures prices for energy, inflation rates are expected to remain at negative levels in the coming months and to pick up later in 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further. The Governing Council will closely monitor price-setting behaviour and wage developments in the euro area, paying particular attention to ensure that the current low inflation environment does not become entrenched in second-round effects on wage and price-setting.","This broad pattern is also reflected in the March 2016 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. In comparison with the December 2015 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down, mainly reflecting the fall in oil prices over recent months.","Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), with the annual rate of growth of M3 standing at 5.0% in January 2016, after 4.7% in December 2015. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 10.5% in January, after 10.8% in December.","Loan dynamics continued the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.6% in January 2016, up from 0.1% in December 2015. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained stable at 1.4% in January 2016. Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for firms and households, as well as credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for further monetary stimulus in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, are vital to increase investment and boost job creation. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. As indicated by the European Commission, the implementation of country-specific recommendations continued to be fairly limited in 2015; reform efforts thus need to be stepped up in the majority of euro area countries. Fiscal policies should support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, as decided on 10 March 2016, we have started to expand our monthly purchases under the asset purchase programme to €80 billion, from the previous amount of €60 billion. As stated before, these purchases are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. Moreover, in June, we will conduct the first operation of our new series of targeted longer-term refinancing operations (TLTRO II) and we will commence purchases under our corporate sector purchase programme (CSPP). Further information on the implementation aspects of the CSPP will be released after the press conference on the ECB’s website.","Following our comprehensive package of decisions taken in early March, broad financing conditions in the euro area have improved. The pass-through of the monetary policy stimulus to firms and households, notably through the banking system, is strengthening. However, global uncertainties persist.","Looking forward, it is essential to preserve an appropriate degree of monetary accommodation as long as needed in order to underpin the momentum of the euro area’s economic recovery and in order to accelerate the return of inflation to levels below, but close to, 2%. The Governing Council will continue to monitor closely the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate. In the current context, it is crucial to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price setting.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.3%, quarter on quarter, in the fourth quarter of 2015, supported by domestic demand, while being dampened by relatively weak export trends. Incoming data for the first quarter of 2016 point to ongoing output growth, at a pace broadly similar to that in the final quarter of 2015. Looking ahead, we expect the economic recovery to proceed. Domestic demand, in particular, continues to be supported by our monetary policy measures. Their favourable impact on financing conditions, together with improvements in corporate profitability, is benefiting investment. Moreover, our accommodative monetary policy stance, continued employment gains resulting from past structural reforms and the still relatively low price of oil should provide ongoing support for households’ real disposable income and private consumption. In addition, the fiscal stance in the euro area is slightly expansionary. At the same time, the economic recovery in the euro area is still dampened by the ongoing balance sheet adjustments in a number of sectors, the insufficient pace of implementation of structural reforms and subdued growth prospects in emerging markets.","The risks to the euro area growth outlook still remain tilted to the downside. Our recent monetary policy decisions have improved overall financing conditions, which should support the outlook for consumption and investment. However, uncertainties persist and relate, in particular, to developments in the global economy and to geopolitical risks.","According to Eurostat, euro area annual HICP inflation in March 2016 was 0.0%, compared with -0.2% in February, reflecting mainly a rise in services price inflation. Looking ahead, on the basis of current futures prices for energy, inflation rates could turn negative again in the coming months before picking up in the second half of 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018.","Turning to the monetary analysis, broad money (M3) continued to grow at a robust pace in February 2016, with its annual rate of growth remaining unchanged at 5.0%. As in previous months, annual growth in M3 is mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 10.3% in February, after 10.5% in January.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.9% in February 2016, up from 0.6% in January. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.6% in February 2016, from 1.4% in January.","The euro area bank lending survey for the first quarter of 2016 indicates further improvements in loan supply conditions for enterprises and in loan demand across all loan categories. Improvements in the demand for bank loans were supported by the low level of interest rates, financing needs for investment purposes and housing market prospects.","Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for firms and households, as well as credit flows across the euro area. The comprehensive package of new monetary policy measures adopted in March this year underpins the ongoing upturn in loan growth, thereby supporting the recovery of the real economy.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European levels. Structural policies are essential, given continued high structural unemployment and low potential output growth in the euro area. In particular, actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, are vital to increase investment and boost job creation. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Nowotny for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. As a next step, on 8 June we will start making purchases under our corporate sector purchase programme (CSPP). Moreover, starting on 22 June, we will conduct the first operation in our new series of targeted longer-term refinancing operations. Further information on implementation aspects of the CSPP will be released after the press conference on the ECB’s website.","The comprehensive package of decisions taken in early March underpins the momentum of the euro area’s economic recovery and fosters the return of inflation to levels below, but close to, 2%. In particular, our measures continue to ease the cost of credit and contribute to a strengthening in credit creation. The economic recovery is gradually proceeding. Additional stimulus, beyond the impetus already taken into account, is expected from the monetary policy measures still to be implemented and will contribute to further rebalancing the risks to the outlook for growth and inflation. In the current context, it is crucial to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price setting. The Governing Council will closely monitor the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.5%, quarter on quarter, in the first quarter of 2016, after 0.3% in the last quarter of 2015. Growth continues to be supported by domestic demand, while being dampened by weak exports. The latest data point to ongoing growth in the second quarter, though possibly at a lower rate than in the first quarter. Looking ahead, we expect the economic recovery to proceed at a moderate but steady pace. Domestic demand remains supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in corporate profitability continue to promote investment. Moreover, sustained employment gains, which are also benefiting from past structural reforms, and still relatively low oil prices provide additional support for households’ real disposable income and private consumption. In addition, the fiscal stance in the euro area is slightly expansionary. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms.","This outlook is broadly reflected in the June 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.6% in 2016 and 1.7% in 2017 and 2018. Compared with the March 2016 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised up for 2016 and has remained broadly unchanged for 2017 and 2018.","The risks to the euro area growth outlook remain tilted to the downside, but the balance of risks has improved on the back of the monetary policy measures taken and the stimulus still in the pipeline. Downside risks continue to relate to developments in the global economy, to the upcoming British referendum and to other geopolitical risks.","According to Eurostat’s flash estimate, euro area annual HICP inflation in May 2016 was -0.1%, up from -0.2% in April, mainly reflecting higher energy and services price inflation. Looking ahead, on the basis of current futures prices for oil, inflation rates are likely to remain very low or negative in the next few months before picking up in the second half of 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018.","This broad pattern is also reflected in the June 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.2% in 2016, 1.3% in 2017 and 1.6% in 2018. In comparison with the March 2016 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised slightly up for 2016, reflecting recent oil price increases, and has remained unchanged for 2017 and 2018.","Turning to the monetary analysis, broad money (M3) continued to grow at a robust pace in April 2016, with its annual rate of growth standing at 4.6%, after 5.0% in March. As in previous months, annual growth in M3 is mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.7% in April, after 10.1% in March.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) stood at 1.2% in April 2016, compared with 1.1% in March. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained broadly stable at 1.5% in April, after 1.6% in March.","The monetary policy measures in place since June 2014 have clearly improved borrowing conditions for firms and households, as well as credit flows across the euro area. The comprehensive package of new monetary policy measures adopted in March this year underpins the ongoing upturn in loan growth, thereby supporting the recovery of the real economy.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as again strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European levels. Structural policies are essential, given continued high structural unemployment and low potential output growth in the euro area. Structural reforms are necessary in all euro area countries, although specific reform needs differ across the individual economies. At this stage, the focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, including the extension of the Juncker plan, and progress on the capital markets union will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms, in line with the country-specific recommendations recently published by the European Commission, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.","Today we discussed developments since our last monetary policy meeting in early June. Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The announced readiness of central banks to provide liquidity, if needed, and our accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained. Financing conditions remain highly supportive, which contributes to a strengthening in credit creation. They continue to support our baseline scenario of an ongoing economic recovery and an increase in inflation rates.","At the same time, given prevailing uncertainties, the Governing Council will continue to monitor economic and financial market developments very closely and to safeguard the pass-through of its accommodative monetary policy to the real economy. Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth, and the distribution of risks around those paths. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2016, after 0.4% in the last quarter of 2015. Growth continues to be supported by domestic demand, while export growth has remained modest. Incoming data point to ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter. Looking ahead, we continue to expect the economic recovery to proceed at a moderate pace. Domestic demand remains supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in corporate profitability continue to promote a recovery in investment. Sustained employment gains, which are also benefiting from past structural reforms, and still relatively low oil prices provide additional support for households’ real disposable income and thus for private consumption. In addition, the fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017 and 2018.","At the same time, headwinds to the economic recovery in the euro area include the outcome of the UK referendum and other geopolitical uncertainties, subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms. Against this background, the risks to the euro area growth outlook remain tilted to the downside.","According to Eurostat, euro area annual HICP inflation in June 2016 was 0.1%, up from -0.1% in May, mainly reflecting higher energy and services price inflation. Looking ahead, on the basis of current futures prices for oil, inflation rates are likely to remain very low in the next few months before starting to pick up later in 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018.","Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in May 2016, with its annual rate of growth standing at 4.9%, after 4.6% in April. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.1% in May, after 9.7% in April.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 1.4% in May 2016, compared with 1.2% in April. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained broadly stable at 1.6% in May, after 1.5% in April.","The euro area bank lending survey for the second quarter of 2016 indicates further improvements in loan supply conditions for loans to enterprises and households and a continued increase in loan demand across all loan categories. Furthermore, banks continued to report that the targeted longer-term refinancing operations had contributed to more favourable terms and conditions on loans.","The monetary policy measures in place since June 2014 have significantly improved borrowing conditions for firms and households, as well as credit flows across the euro area. The comprehensive package of new monetary policy measures adopted in March this year underpins the ongoing upturn in loan growth, thereby supporting the recovery of the real economy. In the light of the prevailing uncertainties, it is essential that the bank lending channel continues to function well.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as again strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries, although specific reform needs differ across the individual economies. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, including the extension of the Juncker plan, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms, in line with the 2016 country-specific recommendations recently approved by the European Council, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.","Today, we assessed the economic and monetary data which had become available since our last meeting and discussed the new ECB staff macroeconomic projections. Overall, while the available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty, our baseline scenario remains subject to downside risks.","Our comprehensive policy measures continue to ensure supportive financing conditions and underpin the momentum of the euro area economic recovery. As a result, we continue to expect real GDP to grow at a moderate but steady pace and euro area inflation to rise gradually over the coming months, in line with the path already implied in our June 2016 staff projections.","The Governing Council will continue to monitor economic and financial market developments very closely. We will preserve the very substantial amount of monetary support that is embedded in our staff projections and that is necessary to secure a return of inflation to levels below, but close to, 2% over the medium term. If warranted, we will act by using all the instruments available within our mandate. Meanwhile, the Governing Council tasked the relevant committees to evaluate the options that ensure a smooth implementation of our purchase programme.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.3%, quarter on quarter, in the second quarter of 2016, after 0.5% in the first quarter. Incoming data point to ongoing growth in the third quarter of 2016, at around the same rate as in the second quarter. Looking ahead, we continue to expect the economic recovery to proceed at a moderate but steady pace. Domestic demand remains supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in the demand outlook and in corporate profitability continue to promote a recovery in investment. Sustained employment gains, which are also benefiting from past structural reforms, and still relatively low oil prices provide additional support for households’ real disposable income and thus for private consumption. In addition, the fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017 and 2018. However, the economic recovery in the euro area is expected to be dampened by still subdued foreign demand, partly related to the uncertainties following the UK referendum outcome, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms. The risks to the euro area growth outlook remain tilted to the downside and relate mainly to the external environment.","This assessment is broadly reflected in the September 2016 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.7% in 2016, by 1.6% in 2017 and by 1.6% in 2018. Compared with the June 2016 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised downwards slightly.","According to Eurostat’s flash estimate, euro area annual HICP inflation in August 2016 was 0.2%, unchanged from July. While annual energy inflation continued to rise, services and non-energy industrial goods inflation turned out to be slightly lower than in July. Looking ahead, on the basis of current oil futures prices, inflation rates are likely to remain low over the next few months before starting to pick up towards the end of 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018.","This pattern is also reflected in the September 2016 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.2% in 2016, 1.2% in 2017 and 1.6% in 2018. In comparison with the June 2016 Eurosystem staff macroeconomic projections, the outlook for HICP inflation is broadly unchanged.","Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in July 2016, with its annual rate of growth standing at 4.8%, after 5.0% in June. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.4% in July, after 8.7% in June.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations increased to 1.9% in July 2016, compared with 1.7% in June. The annual growth rate of loans to households remained stable at 1.8% in July. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures in place since June 2014 are increasingly filtering through to support borrowing conditions for firms and households and thereby credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve the very substantial amount of monetary support that is necessary in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, including the extension of the Juncker plan, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries remains crucial to ensure confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.","The information that has become available since our meeting in early September confirms a continued moderate but steady recovery of the euro area economy and a gradual rise in inflation, in line with our previous expectations. The euro area economy has continued to show resilience to the adverse effects of global economic and political uncertainty, aided by our comprehensive monetary policy measures, which ensure very favourable financing conditions for firms and households. Overall, however, the baseline scenario remains subject to downside risks.","Looking ahead, we remain committed to preserving the very substantial degree of monetary accommodation which is necessary to secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term. To that end, we will continue to act, if warranted, by using all the instruments available within our mandate. In December the Governing Council’s assessment will benefit from the new staff macroeconomic projections extending through to 2019 and from the work of the Eurosystem committees on the options to ensure the smooth implementation of our purchase programme until March 2017, or beyond, if necessary.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area increased by 0.3%, quarter on quarter, in the second quarter of 2016, after 0.5% in the first quarter. The latest data and survey results point to continued growth in the third quarter of 2016, at around the same pace as in the second quarter. Looking further ahead, we expect the economic expansion to proceed at a moderate but steady pace. Domestic demand should be supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in corporate profitability continue to promote a recovery in investment. Moreover, still relatively low oil prices and sustained employment gains, which are also benefiting from past structural reforms, provide additional support for households’ real disposable income and private consumption. In addition, the fiscal stance in the euro area will be broadly neutral in 2017. However, the economic recovery in the euro area is expected to be dampened by still subdued foreign demand, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms. The risks to the euro area growth outlook remain tilted to the downside and relate mainly to the external environment.","According to Eurostat, euro area annual HICP inflation in September 2016 was 0.4%, up from 0.2% in August. This reflected mainly a continued increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. Looking ahead, on the basis of current oil futures prices, inflation rates are likely to pick up over the next couple of months, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018.","Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in August 2016, with its annual rate of growth standing at 5.1%, after 4.9% in July. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.9% in August, after 8.4% in July.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations stood at 1.9% in August 2016. The annual growth rate of loans to households also remained stable, at 1.8%, in August. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area.","The euro area bank lending survey for the third quarter of 2016 indicates some further improvements in both supply and demand conditions for loans to the non-financial private sector. Furthermore, banks continued to report that the ECB’s asset purchase programme and the negative deposit facility rate had contributed to more favourable terms and conditions on loans.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to preserve the very substantial amount of monetary support that is necessary in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, and as again strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, including the extension of the Juncker plan, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries remains crucial to ensure confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we today conducted a comprehensive assessment of the economic and inflation outlook and our monetary policy stance. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective:","As regards non-standard monetary policy measures, we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, our net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.","To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to adjust the parameters of the APP as of January 2017 as follows. First, the maturity range of the public sector purchase programme will be broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year. Second, purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will be permitted to the extent necessary.","The key ECB interest rates were kept unchanged and we continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. ","Today’s extension of the asset purchase programme has been calibrated to preserve the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Together with the sizeable volume of past purchases and forthcoming reinvestments, it ensures that financial conditions in the euro area will remain very favourable, which continues to be crucial to achieve our objective. In particular, the extension of our purchases over a longer horizon allows for a more sustained market presence and, therefore, a more lasting transmission of our stimulus measures. This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures. The Governing Council will closely monitor the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area increased by 0.3%, quarter on quarter, in the third quarter of 2016, following similar growth in the second quarter. Incoming data, notably survey results, point to a continuation of the growth trend in the fourth quarter of 2016. Looking further ahead, we expect the economic expansion to proceed at a moderate but firming pace. The pass-through of our monetary policy measures to the real economy is supporting domestic demand and has facilitated deleveraging. Improvements in corporate profitability and very favourable financing conditions continue to promote a recovery in investment. Moreover, sustained employment gains, which are also benefiting from past structural reforms, provide support for households’ real disposable income and private consumption. At the same time, there are indications of a somewhat stronger global recovery. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors.","This assessment is broadly reflected in the December 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.7% in 2016 and 2017, and by 1.6% in 2018 and 2019. Compared with the September 2016 ECB staff macroeconomic projections, the outlook for real GDP growth is broadly unchanged. The risks surrounding the euro area growth outlook remain tilted to the downside.","According to Eurostat’s flash estimate, euro area annual HICP inflation in November 2016 was 0.6%, up further from 0.5% in October and 0.4% in September. This reflected to a large extent an increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. Looking ahead, on the basis of current oil futures prices, headline inflation rates are likely to pick up significantly further at the turn of the year, mainly owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures, the expected economic recovery and the corresponding gradual absorption of slack, inflation rates should increase further in 2018 and 2019.","This pattern is also reflected in the December 2016 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.2% in 2016, 1.3% in 2017, 1.5% in 2018 and 1.7% in 2019. By comparison with the September 2016 ECB staff macroeconomic projections, the outlook for headline HICP inflation is broadly unchanged.","Turning to the monetary analysis, broad money (M3) growth moderated in October 2016, with its annual rate of growth decreasing to 4.4%, after 5.1% in September. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 7.9% in October, after 8.4% in September.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations increased to 2.1% in October 2016, from 2.0% in the previous month. The annual growth rate of loans to households remained at 1.8%. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures put in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to take today’s monetary policy decisions so as to preserve the very substantial amount of monetary support that is necessary in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. As emphasised repeatedly by the Governing Council, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms in particular needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries. The focus should be on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation. The enhancement of current investment initiatives, progress on the capital markets union and reforms that will improve the resolution of non-performing loans will also contribute positively to this objective. In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms will also make the euro area more resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries remains crucial to ensure confidence in the fiscal framework. At the same time, it is essential that all countries intensify efforts towards achieving a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","Ladies and gentlemen, first of all let me wish you a Happy New Year. 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. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, our net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.","The Governing Council today also decided on further details of how the Eurosystem will buy assets with yields below the interest rate on the deposit facility under its public sector purchase programme. These decisions will be published in a separate press release at 15.30 CET.","The monetary policy decisions taken in December 2016 have succeeded in preserving the very favourable financing conditions that are necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Borrowing conditions for firms and households continue to benefit from the pass-through of our measures. As expected, headline inflation has increased lately, largely owing to base effects in energy prices, but underlying inflation pressures remain subdued. The Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability.","A very substantial degree of monetary accommodation is needed for euro area inflation pressures to build up and support headline inflation in the medium term. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate. In particular, if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2016, after recording a similar pace of growth in the second quarter. Incoming data, notably survey results, point to somewhat stronger growth in the last quarter of 2016. Looking ahead, we expect the economic expansion to firm further. The pass-through of our monetary policy measures is supporting domestic demand and facilitating the ongoing deleveraging process. The very favourable financing conditions and improvements in corporate profitability continue to promote the recovery in investment. Moreover, sustained employment gains, which are also benefiting from past structural reforms, provide support for private consumption via increases in households’ real disposable income. At the same time, there are signs of a somewhat stronger global recovery. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors. The risks surrounding the euro area growth outlook remain tilted to the downside and relate predominantly to global factors.","According to Eurostat, euro area annual HICP inflation increased markedly from 0.6% in November 2016 to 1.1% in December. This reflected mainly a strong increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation. Looking ahead, on the basis of current oil futures prices, headline inflation is likely to pick up further in the near term, largely reflecting movements in the annual rate of change of energy prices. However, measures of underlying inflation are expected to rise more gradually over the medium term, supported by our monetary policy measures, the expected economic recovery and the corresponding gradual absorption of slack.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with its annual rate of growth increasing to 4.8% in November 2016, up from 4.4% in October. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.7% in November, up from 8.0% in October.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual growth rate of loans to non-financial corporations was 2.2% in November 2016, after 2.1% in the previous month. The annual growth rate of loans to households was 1.9% in November, after 1.8% in October. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures put in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area. The euro area bank lending survey for the fourth quarter of 2016 indicates that credit standards for loans to enterprises are broadly stabilising, while loan demand has continued to expand at a robust pace across all loan categories.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% without undue delay.","Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost investment, productivity and potential output growth in the euro area. Structural reforms are necessary in all euro area countries. In particular, reforms are needed to improve the business environment, including the provision of an adequate public infrastructure. In addition, the enhancement of current investment initiatives, progress on the capital markets union and reforms that will improve the resolution of non-performing loans, are a priority. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries remains crucial to ensure confidence in the fiscal framework. At the same time, it is essential that all countries intensify efforts towards achieving a more growth-friendly composition of fiscal policies.","We are now at your disposal for questions.","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. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of this month and that, from April 2017, our net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.","Our monetary policy measures have continued to preserve the very favourable financing conditions that are necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Their ongoing pass-through to the borrowing conditions for firms and households benefits credit creation and supports the steadily firming recovery of the euro area economy. Sentiment indicators suggest that the cyclical recovery may be gaining momentum. Headline inflation has again increased, largely on account of rising energy and food price inflation. However, underlying inflation pressures continue to remain subdued. The Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability.","A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in the fourth quarter of 2016, following a similar pace of growth in the third quarter. Incoming data, notably survey results, increase our confidence that the ongoing economic expansion will continue to firm and broaden. The pass-through of our monetary policy measures is supporting domestic demand and facilitates the ongoing deleveraging process. The recovery in investment continues to be promoted by very favourable financing conditions and improvements in corporate profitability. Moreover, rising employment, which is also benefiting from past structural reforms, is having a positive impact on households’ real disposable income, thereby providing support for private consumption. Also, there are signs of a somewhat stronger global recovery and increasing global trade. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustment needs in a number of sectors.","This assessment is broadly reflected in the March 2017 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.8% in 2017, by 1.7% in 2018 and by 1.6% in 2019. Compared with the December 2016 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised upwards slightly in 2017 and 2018. The risks surrounding the euro area growth outlook have become less pronounced, but remain tilted to the downside and relate predominantly to global factors.","According to Eurostat’s flash estimate, euro area annual HICP inflation increased further to 2.0% in February, up from 1.8% in January 2017 and 1.1% in December 2016. This reflected mainly a strong increase in annual energy and unprocessed food price inflation, with no signs yet of a convincing upward trend in underlying inflation. Headline inflation is likely to remain at levels close to 2% in the coming months, largely reflecting movements in the annual rate of change of energy prices. Measures of underlying inflation, however, have remained low and are expected to rise only gradually over the medium term, supported by our monetary policy measures, the expected continuing economic recovery and the corresponding gradual absorption of slack.","This pattern is also reflected in the March 2017 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2017, 1.6% in 2018 and 1.7% in 2019. By comparison with the December 2016 Eurosystem staff macroeconomic projections, the outlook for headline HICP inflation has been revised upwards significantly for 2017 and slightly for 2018, while remaining unchanged for 2019. The staff projections are conditional on the full implementation of all our monetary policy measures.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.9% in January 2017, after 5.0% in December 2016. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.4% in January 2017, after 8.8% in December 2016.","Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual growth rate of loans to non-financial corporations was 2.3% in January 2017, as in the previous month. The annual growth rate of loans to households was 2.2% in January 2017, after 2.0% in December 2016. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets, the monetary policy measures put in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% without undue delay.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively to strengthening economic growth. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost potential output growth. Against the background of overall limited implementation of country-specific recommendations in 2016, greater reform effort is necessary in all euro area countries in 2017. Regarding fiscal policies, all countries should intensify efforts towards achieving a more growth-friendly composition of public finances. A full and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains crucial to ensure confidence in the EU’s governance framework.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the new monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme.","Our monetary policy measures have continued to preserve the very favourable financing conditions that are necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Incoming data since our meeting in early March confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished. At the same time, underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend. Moreover, the ongoing volatility in headline inflation underlines the need to look through transient developments in HICP inflation, which have no implication for the medium-term outlook for price stability.","A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.5%, quarter on quarter, in the fourth quarter of 2016, following a growth rate of 0.4% in the third quarter. Incoming data, notably survey results, bolster our confidence that the ongoing economic expansion will continue to firm and broaden. The pass-through of our monetary policy measures is supporting domestic demand and facilitates the ongoing deleveraging process. The recovery in investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Employment gains, which are also benefiting from past labour market reforms, are supporting real disposable income and private consumption. Moreover, the signs of a stronger global recovery and increasing global trade suggest that foreign demand should increasingly add to the overall resilience of the economic expansion in the euro area. However, economic growth continues to be dampened by a sluggish pace of implementation of structural reforms, in particular in product markets, and by remaining balance sheet adjustment needs in a number of sectors. The risks surrounding the euro area growth outlook, while moving towards a more balanced configuration, are still tilted to the downside and relate predominantly to global factors.","Headline inflation has been recovering from the very low levels seen in 2016, largely owing to higher energy price increases. After reaching 2.0% in February 2017, euro area annual HICP inflation stood at 1.5% in March. This reflected mainly lower energy and unprocessed food price inflation, but also a decline in services price inflation. Looking ahead, on the basis of current futures prices for oil, headline inflation is likely to increase in April and thereafter to hover around current levels until the end of this year. However, as unutilised resources are still weighing on domestic wage and price formation, measures of underlying inflation remain low and are expected to rise only gradually over the medium term, supported by our monetary policy measures, the expected continuing economic recovery and the corresponding gradual absorption of slack.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.7% in February 2017, after 4.8% in January. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.4% in February 2017, unchanged from the previous month.","The recovery in loan growth to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations declined to 2.0% in February 2017, from 2.3% in the previous month, while the annual growth rate of loans to households remained broadly stable at 2.3% in February. At the same time, the euro area bank lending survey for the first quarter of 2017 indicates that net loan demand has increased and bank lending conditions have further eased across all loan categories. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% without undue delay.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively to strengthening economic growth. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost productivity and potential output growth. Regarding fiscal policies, all countries should intensify efforts towards achieving a more growth-friendly composition of public finances. A full and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains crucial to enhance the resilience of the euro area economy.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Governor Hansson for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme.","Our monetary policy measures have continued to preserve the very favourable financing conditions that are necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. The information that has become available since our last monetary policy meeting in late April confirms a stronger momentum in the euro area economy, which is projected to expand at a somewhat faster pace than previously expected. We consider that the risks to the growth outlook are now broadly balanced.","At the same time, the economic expansion has yet to translate into stronger inflation dynamics. So far, measures of underlying inflation continue to remain subdued. Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2017, after 0.5% in the last quarter of 2016. Incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead. The pass-through of our monetary policy measures has facilitated the deleveraging process and should continue to support domestic demand. In particular, the recovery in investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Employment gains, which are also benefiting from past labour market reforms, are supporting real disposable income and private consumption. Moreover, the global recovery is increasingly supporting trade and euro area exports. However, economic growth prospects continue to be dampened by a sluggish pace of implementation of structural reforms, in particular in product markets, and by remaining balance sheet adjustment needs in a number of sectors, notwithstanding ongoing improvements.","This assessment is broadly reflected in the June 2017 Eurosystem staff macroeconomic projections for the euro area, finalised in late May, which are conditional on the full implementation of all our monetary policy measures. These projections foresee annual real GDP increasing by 1.9% in 2017, by 1.8% in 2018 and by 1.7% in 2019. Compared with the March 2017 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised upwards over the projection horizon.","The risks surrounding the euro area growth outlook are considered to be broadly balanced. On the one hand, the current positive cyclical momentum increases the chances of a stronger than expected economic upswing. On the other hand, downside risks relating to predominantly global factors continue to exist.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.4% in May, following 1.9% in April and 1.5% in March. As expected, the recent volatility in inflation rates was mainly due to energy prices and temporary increases in services prices over the Easter period. Looking ahead, on the basis of current futures prices for oil, headline inflation is likely to remain around current levels in the coming months. At the same time, measures of underlying inflation remain low and have yet to show convincing signs of a pick-up, as unutilised resources are still weighing on domestic price and wage formation. Underlying inflation is expected to rise only gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and the corresponding gradual absorption of economic slack.","This assessment is also broadly reflected in the June 2017 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2017, 1.3% in 2018 and 1.6% in 2019. By comparison with the March 2017 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised downwards, mainly reflecting lower oil prices.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.9% in April 2017, after 5.3% in March. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.2% in April 2017, after 9.1% in March.","The recovery in loan growth to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 2.4% in April 2017, from 2.3% in the previous month, while the annual growth rate of loans to households remained stable at 2.4% in April. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing, notably for small and medium-sized enterprises, and, hence, credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively to strengthening economic growth. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost productivity and potential output growth. Regarding fiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains essential to bolster the resilience of the euro area economy.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme.","Our monetary policy measures have continued to secure the very supportive financing conditions that are necessary to make continuous progress towards a sustained convergence of inflation rates to levels below, but close to, 2% over the medium term. The incoming information confirms a continued strengthening of the economic expansion in the euro area, which has been broadening across sectors and regions. The risks to the growth outlook are broadly balanced.","While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate into stronger inflation dynamics. Headline inflation is dampened by the weakness in energy prices. Moreover, measures of underlying inflation remain overall at subdued levels. Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2017, after 0.5% in the last quarter of 2016. Incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead. The pass-through of our monetary policy measures is supporting domestic demand and has facilitated the deleveraging process. The recovery in investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Private consumption is supported by employment gains, which are also benefiting from past labour market reforms, and by increasing household wealth. Moreover, the global recovery should increasingly lend support to trade and euro area exports. However, economic growth prospects continue to be dampened by a slow pace of implementation of structural reforms, particularly in product markets, and by remaining balance sheet adjustment needs in a number of sectors, notwithstanding ongoing improvements.","The risks surrounding the euro area growth outlook are broadly balanced. On the one hand, the current positive cyclical momentum increases the chances of a stronger than expected economic upswing. On the other hand, downside risks primarily relating to global factors continue to exist.","Euro area annual HICP inflation was 1.3% in June, down slightly from 1.4% in May, mainly due to lower energy price inflation. Looking ahead, on the basis of current futures prices for oil, headline inflation is likely to remain around current levels in the coming months. At the same time, measures of underlying inflation remain low and have yet to show convincing signs of a pick-up, as domestic cost pressures, including wage growth, are still subdued. Underlying inflation in the euro area is expected to rise only gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and the corresponding gradual absorption of economic slack.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.0% in May 2017, after 4.9% in April. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.3% in May 2017, unchanged from April.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations remained stable at 2.4% in May 2017, while the annual growth rate of loans to households increased to 2.6%, from 2.4% in April. The euro area bank lending survey for the second quarter of 2017 indicates that credit standards for loans to enterprises and loans to households for house purchase have further eased and that loan growth continues to be supported by increasing demand. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost productivity growth. Regarding fiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains essential to bolster the resilience of the euro area economy.","We are now at your disposal for questions.","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. We expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme.","The incoming information, including our new staff projections, confirms a broadly unchanged medium-term outlook for euro area economic growth and inflation. The economic expansion, which accelerated more than expected in the first half of 2017, continues to be solid and broad-based across countries and sectors. At the same time, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability.","While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate sufficiently into stronger inflation dynamics. Measures of underlying inflation have ticked up slightly in recent months but, overall, remain at subdued levels. Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration. This autumn we will decide on the calibration of our policy instruments beyond the end of the year, taking into account the expected path of inflation and the financial conditions needed for a sustained return of inflation rates towards levels that are below, but close to, 2%.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the second quarter of 2017, after 0.5% in the first quarter. Survey data point to continued broad-based growth in the period ahead. Our monetary policy measures are supporting domestic demand and have facilitated the deleveraging process. Private consumption is underpinned by employment gains, which are also benefiting from past labour market reforms, and by increasing household wealth. The recovery in investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Moreover, the broad-based global recovery will support euro area exports.","This assessment is broadly reflected in the September 2017 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.2% in 2017, by 1.8% in 2018 and by 1.7% in 2019. Compared with the June 2017 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised up for 2017, reflecting the recent stronger growth momentum, and is broadly unchanged thereafter.","Risks surrounding the euro area growth outlook remain broadly balanced. On the one hand, the current positive cyclical momentum increases the chances of a stronger than expected economic upswing. On the other hand, downside risks continue to exist, primarily relating to global factors and developments in foreign exchange markets.","Euro area annual HICP inflation was 1.5% in August. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to temporarily decline towards the turn of the year, mainly reflecting base effects in energy prices. At the same time, measures of underlying inflation have ticked up moderately in recent months, but have yet to show convincing signs of a sustained upward trend. Domestic cost pressures, notably from labour markets, are still subdued. Underlying inflation in the euro area is expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding gradual absorption of economic slack and rising wages.","This assessment is also broadly reflected in the September 2017 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2017, 1.2% in 2018 and 1.5% in 2019. Compared with the June 2017 Eurosystem staff macroeconomic projections, the outlook for headline HICP inflation has been revised down slightly, mainly reflecting the recent appreciation of the euro exchange rate.","Turning to the monetary analysis, broad money (M3), despite some monthly volatility, continues to expand at a robust pace, with an annual rate of growth of 4.5% in July 2017, after 5.0% in June. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.1% in July 2017, down from 9.7% in June.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 2.4% in July 2017, up from 2.0% in June, while the annual growth rate of loans to households remained stable at 2.6%. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area growth potential and productivity. Regarding fiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains essential to bolster the resilience of the euro area economy. Strengthening Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing discussions on further enhancing the institutional architecture of our Economic and Monetary Union.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, today we conducted a thorough assessment of the outlook for inflation, the risks surrounding this outlook and our monetary policy stance. As a result, the Governing Council took the following decisions in pursuit of its price stability objective.","First, the key ECB interest rates were kept unchanged and we continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.","Second, as regards non-standard monetary policy measures, we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €60 billion until the end of December 2017. From January 2018 our net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration.","Third, the Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.","And fourth, we also decided to continue to conduct the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2019.","Today’s monetary policy decisions were taken to preserve the very favourable financing conditions that are still needed for a sustained return of inflation rates towards levels that are below, but close to, 2%. The recalibration of our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim, on account of the increasingly robust and broad-based economic expansion, an uptick in measures of underlying inflation and the continued effective pass-through of our policy measures to the financing conditions of the real economy. At the same time, domestic price pressures are still muted overall and the economic outlook and the path of inflation remain conditional on continued support from monetary policy. Therefore, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the additional net asset purchases, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates.","Let me now explain our assessment in greater detail, starting with the economic analysis. The economic expansion in the euro area continues to be solid and broad-based. Real GDP increased by 0.7%, quarter on quarter, in the second quarter of 2017, after 0.6% in the first quarter. The latest data and survey results point to unabated growth momentum in the second half of this year. Our monetary policy measures have facilitated the deleveraging process and continue to support domestic demand. Private consumption is underpinned by rising employment, which is also benefiting from past labour market reforms, and by increasing household wealth. The upswing in business investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Construction investment has also strengthened. In addition, the broad-based global recovery is supporting euro area exports.","Risks surrounding the euro area growth outlook remain broadly balanced. On the one hand, the strong cyclical momentum, as evidenced in recent developments in sentiment indicators, could lead to further positive growth surprises. On the other hand, downside risks continue to relate primarily to global factors and developments in foreign exchange markets.","Euro area annual HICP inflation remained unchanged at 1.5% in September. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to temporarily decline towards the turn of the year, mainly reflecting base effects in energy prices. At the same time, measures of underlying inflation have ticked up moderately since early 2017, but have yet to show more convincing signs of a sustained upward trend. Wage growth has increased somewhat, but domestic cost pressures still remain subdued overall. Underlying inflation in the euro area is expected to continue to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding gradual absorption of economic slack and rising wage growth.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.1% in September 2017, after 5.0% in August. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.7% in September 2017, up from 9.5% in August.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 2.5% in September 2017, after 2.4% in August, while the annual growth rate of loans to households remained stable at 2.7%. The euro area bank lending survey for the third quarter of 2017 indicates that net loan demand has continued to increase for all loan categories. Credit standards have further eased for loans to households, while they remained broadly unchanged for loans to enterprises. Banks’ overall terms and conditions on new loans have continued to ease for all categories of loans.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need to recalibrate the policy instruments to ensure the degree of monetary accommodation necessary to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in all euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Strengthening Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing discussions on further enhancing the institutional architecture of our Economic and Monetary Union.","We are now at your disposal for questions.","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 President of the Eurogroup, Mr Dijsselbloem, and by the Commission Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.","Regarding non-standard monetary policy measures, we confirm that from January 2018 we intend to continue to make net asset purchases under the asset purchase programme (APP), at a monthly pace of €30 billion, until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration. The Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.","Our monetary policy decisions have preserved the very favourable financing conditions that are still needed for a sustained return of inflation rates towards levels that are below, but close to, 2%. The incoming information, including our new staff projections, indicates a strong pace of economic expansion and a significant improvement in the growth outlook. The strong cyclical momentum and the significant reduction of economic slack give grounds for greater confidence that inflation will converge towards our inflation aim. At the same time, domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend. An ample degree of monetary stimulus therefore remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the additional net asset purchases that we decided on at our October monetary policy meeting, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates.","Let me now explain our assessment in greater detail, starting with the economic analysis. The economic expansion in the euro area continued in the third quarter of 2017, when real GDP increased by 0.6% quarter on quarter, after 0.7% in the second quarter. The latest data and survey results point to solid and broad-based growth momentum. Our monetary policy measures, which have facilitated the deleveraging process, continue to support domestic demand. Private consumption is underpinned by ongoing employment gains, which are also benefiting from past labour market reforms, and by rising household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and strengthening demand. Housing investment has also risen further over recent quarters. In addition, euro area exports are being supported by the broad-based global expansion.","This assessment is broadly reflected in the December 2017 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.4% in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020. Compared with the September 2017 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised up substantially.","Risks surrounding the euro area growth outlook remain broadly balanced. On the one hand, the strong cyclical momentum, underpinned by continued positive developments in sentiment indicators, could lead to further positive growth surprises in the near term. On the other hand, downside risks continue to relate primarily to global factors and developments in foreign exchange markets.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in November, up from 1.4% in October. At the same time, measures of underlying inflation have moderated somewhat recently, in part owing to special factors. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to moderate in the coming months, mainly reflecting base effects in energy prices, before increasing again. Underlying inflation is expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","This assessment is also broadly reflected in the December 2017 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.5% in 2017, 1.4% in 2018, 1.5% in 2019 and 1.7% in 2020. Compared with the September 2017 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up, mainly reflecting higher oil and food prices.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.0% in October 2017, from 5.2% in September, reflecting the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 continued to be the main contributor to broad money growth, expanding at an annual rate of 9.4% in October, after 9.8% in September.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 2.9% in October 2017, after 2.4% in September, while the annual growth rate of loans to households remained stable at 2.7%.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in all euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the increasingly solid and broad-based expansion strengthens the case for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Strengthening Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing discussions on completing the banking union and the capital markets union, and on further enhancing the institutional architecture of our Economic and Monetary Union.","We are now at your disposal for questions.","Ladies and gentlemen, first of all let me wish you a Happy New Year. 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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.","Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the new monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the asset purchase programme (APP) in terms of size and/or duration. The Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.","Incoming information confirms a robust pace of economic expansion, which accelerated more than expected in the second half of 2017. The strong cyclical momentum, the ongoing reduction of economic slack and increasing capacity utilisation strengthen further our confidence that inflation will converge towards our inflation aim of below, but close to, 2%. At the same time, domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend. Against this background, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability. Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP increased by 0.7%, quarter on quarter, in the third quarter of 2017, following similar growth in the second quarter. The latest economic data and survey results indicate continued strong and broad-based growth momentum at the turn of the year. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by rising employment, which is also benefiting from past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment has improved further over recent quarters. In addition, the broad-based global expansion is providing impetus to euro area exports.","The risks surrounding the euro area growth outlook are assessed as broadly balanced. On the one hand, the prevailing strong cyclical momentum could lead to further positive growth surprises in the near term. On the other hand, downside risks continue to relate primarily to global factors, including developments in foreign exchange markets.","Euro area annual HICP inflation was 1.4% in December 2017, down from 1.5% in November. This reflected mainly developments in energy prices. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around current levels in the coming months. For their part, measures of underlying inflation remain subdued – in part owing to special factors – and have yet to show convincing signs of a sustained upward trend. Yet, looking forward, they are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.9% in November 2017, after 5.0% in October, reflecting the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 continued to be the main contributor to broad money growth, expanding at an annual rate of 9.1% in November, after 9.4% in October.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations increased to 3.1% in November 2017, after 2.9% in October, while the annual growth rate of loans to households stood at 2.8% in November, compared with 2.7% in October. The euro area bank lending survey for the fourth quarter of 2017 indicates that loan growth continues to be supported by increasing demand and a further easing in overall lending conditions.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.","In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the increasingly solid and broad-based expansion strengthens the case for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Strengthening Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing discussions on completing the banking union and the capital markets union, and on further deepening Economic and Monetary Union.","We are now at your disposal for questions.","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. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.","Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will continue to reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.","Incoming information, including our new staff projections, confirms the strong and broad-based growth momentum in the euro area economy, which is projected to expand in the near term at a somewhat faster pace than previously expected. This outlook for growth confirms our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term. At the same time, measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend. In this context, the Governing Council will continue to monitor developments in the exchange rate and financial conditions with regard to their possible implications for the inflation outlook. Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP increased by 0.6%, quarter on quarter, in the fourth quarter of 2017, after increasing by 0.7% in the third quarter. The latest economic data and survey results indicate continued strong and broad-based growth momentum. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by rising employment, which is also benefiting from past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment has improved further over recent quarters. In addition, the broad-based global expansion is providing impetus to euro area exports.","This assessment is broadly reflected in the March 2018 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.4% in 2018, 1.9% in 2019 and 1.7% in 2020. Compared with the December 2017 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised up for 2018 and remains unchanged for 2019 and 2020.","The risks surrounding the euro area growth outlook are assessed as broadly balanced. On the one hand, the prevailing positive cyclical momentum could lead to stronger growth in the near term. On the other hand, downside risks continue to relate primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets.","According to Eurostat’s flash estimate, euro area annual HICP inflation decreased to 1.2% in February 2018, from 1.3% in January. This reflected mainly negative base effects in unprocessed food price inflation. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around 1.5% for the remainder of the year. Measures of underlying inflation remain subdued overall. Looking forward, they are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","This assessment is also broadly reflected in the March 2018 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.4% in 2018, 1.4% in 2019 and 1.7% in 2020. Compared with the December 2017 Eurosystem staff macroeconomic projections, the outlook for headline HICP inflation has been revised down slightly for 2019 and remains unchanged for 2018 and 2020.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.6% in January 2018, unchanged from the previous month, reflecting the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, continuing to expand at a solid annual rate.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is progressing. The annual growth rate of loans to non-financial corporations strengthened to 3.4% in January 2018, after 3.1% in December 2017, while the annual growth rate of loans to households remained unchanged at 2.9%. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards 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 decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Against the background of overall limited implementation of the 2017 country-specific recommendations, as communicated by the European Commission yesterday, greater reform effort is necessary in the euro area countries. Regarding fiscal policies, the increasingly solid and broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Deepening Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","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. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.","Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will continue to reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.","Following several quarters of higher than expected growth, incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro area economy. The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term. At the same time, measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend. In this context, the Governing Council will continue to monitor developments in the exchange rate and other financial conditions with regard to their possible implications for the inflation outlook. Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the ongoing and forthcoming reinvestments, and by our forward guidance on interest rates.","Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP increased by 0.7%, quarter on quarter, in the fourth quarter of 2017, following similar growth in the previous quarter. This resulted in an average annual growth rate of 2.4% in 2017 – the highest since 2007. The latest economic indicators suggest some moderation in the pace of growth since the start of the year. This moderation may in part reflect a pull-back from the high pace of growth observed at the end of last year, while temporary factors may also be at work. Overall, however, growth is expected to remain solid and broad-based. Our monetary policy measures, which have facilitated the deleveraging process, should continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment continues to improve. In addition, the broad-based global expansion is providing impetus to euro area exports.","The risks surrounding the euro area growth outlook remain broadly balanced. However, risks related to global factors, including the threat of increased protectionism, have become more prominent.","Euro area annual HICP inflation increased to 1.3% in March 2018, from 1.1% in February. This reflected mainly higher food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around 1.5% for the remainder of the year. Measures of underlying inflation remain subdued overall. Looking ahead, they are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual growth rate of 4.2% in February 2018, slightly below the narrow range observed since mid-2015. M3 growth continues to reflect the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, continuing to expand at a solid annual rate.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 3.1% in February 2018, after 3.4% in January and 3.1% in December 2017, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the first quarter of 2018 indicates that loan growth continues to be supported by increasing demand across all loan categories and a further easing in overall bank lending conditions for loans to enterprises and loans for house purchase.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards 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 decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Against the background of overall limited implementation of the 2017 country-specific recommendations, greater reform effort is necessary in euro area countries. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Deputy Governor Razmusa for her kind hospitality and express our special gratitude to her staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","Since the start of our asset purchase programme (APP) in January 2015, the Governing Council has made net asset purchases under the APP conditional on the extent of progress towards a sustained adjustment in the path of inflation to levels below, but close to, 2% in the medium term. Today, the Governing Council undertook a careful review of the progress made, also taking into account the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook.","As a result of this assessment, the Governing Council concluded that progress towards a sustained adjustment in inflation has been substantial so far. With longer-term inflation expectations well anchored, the underlying strength of the euro area economy and the continuing ample degree of monetary accommodation provide grounds to be confident that the sustained convergence of inflation towards our aim will continue in the period ahead, and will be maintained even after a gradual winding-down of our net asset purchases.","Accordingly, the Governing Council today made the following decisions:","First, as regards non-standard monetary policy measures, we will continue to make net purchases under the APP at the current monthly pace of €30 billion until the end of September 2018. We anticipate that, after September 2018, subject to incoming data confirming our medium-term inflation outlook, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and then end net purchases.","Second, we intend to maintain our policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.","Third, we decided to keep the key ECB interest rates unchanged and we expect them to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path.","Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Quarterly real GDP growth moderated to 0.4% in the first quarter of 2018, following growth of 0.7% in the previous quarters. This moderation reflects a pull-back from the very high levels of growth in 2017, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level, as well as weaker impetus from external trade. The latest economic indicators and survey results are weaker, but remain consistent with ongoing solid and broad-based economic growth. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.","This assessment is broadly reflected in the June 2018 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.1% in 2018, 1.9% in 2019 and 1.7% in 2020. Compared with the March 2018 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised down for 2018 and remains unchanged for 2019 and 2020.","The risks surrounding the euro area growth outlook remain broadly balanced. Nevertheless, uncertainties related to global factors, including the threat of increased protectionism, have become more prominent. Moreover, the risk of persistent heightened financial market volatility warrants monitoring.","According to Eurostat’s flash estimate, euro area annual HICP inflation increased to 1.9% in May 2018, from 1.2% in April. This reflected higher contributions from energy, food and services price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening amid high levels of capacity utilisation, tightening labour markets and rising wages. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","This assessment is also broadly reflected in the June 2018 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2018, 2019 and 2020. Compared with the March 2018 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up notably for 2018 and 2019, mainly reflecting higher oil prices.","Turning to the monetary analysis, broad money (M3) growth stood at 3.9% in April 2018, after 3.7% in March and 4.3% in February. While the slower momentum in M3 dynamics over recent months mainly reflects the reduction in the monthly net asset purchases since the beginning of the year, M3 growth continues to be supported by the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, although its annual growth rate has receded in recent months from the high rates previously observed.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 3.3% in April 2018, unchanged from the previous month, and the annual growth rate of loans to households also remained stable, at 2.9%.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households and credit flows across the euro area. This is also reflected in the results of the latest Survey on the Access to Finance of Enterprises in the euro area, which indicates that small and medium-sized enterprises in particular benefited from improved access to financing.","To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that today’s monetary policy decisions will ensure the ample degree of monetary accommodation necessary for the continued sustained convergence of inflation towards 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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","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. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. We anticipate that, after September 2018, subject to incoming data confirming our medium-term inflation outlook, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.","While uncertainties, notably related to the global trade environment, remain prominent, the information available since our last monetary policy meeting indicates that the euro area economy is proceeding along a solid and broad-based growth path. The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding-down of our net asset purchases. Nevertheless, significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Quarterly real GDP growth moderated to 0.4% in the first quarter of 2018, following growth of 0.7% in the previous three quarters. This easing reflects a pull-back from the very high levels of growth in 2017 and is related mainly to weaker impetus from previously very strong external trade, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level. The latest economic indicators and survey results have stabilised and continue to point to ongoing solid and broad-based economic growth, in line with the June 2018 Eurosystem staff macroeconomic projections for the euro area. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.","The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. Uncertainties related to global factors, notably the threat of protectionism, remain prominent. Moreover, the risk of persistent heightened financial market volatility continues to warrant monitoring.","Euro area annual HICP inflation increased to 2.0% in June 2018, from 1.9% in May, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.","Turning to the monetary analysis, broad money (M3) growth increased to 4.4% in June 2018, up from 4.0% in May. M3 growth continues to benefit from the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations rose to 4.1% in June 2018, after 3.7% in the previous month, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the second quarter of 2018 indicates that loan growth continues to be supported by easing credit standards and increasing demand across all loan categories.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of this month. After September 2018, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and we anticipate that, subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.","The incoming information, including our new September 2018 staff projections, broadly confirms our previous assessment of an ongoing broad-based expansion of the euro area economy and gradually rising inflation. The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases. At the same time, uncertainties relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in the second quarter of 2018, following growth at the same rate in the previous quarter. Despite some moderation following the strong growth performance in 2017, the latest economic indicators and survey results overall confirm ongoing broad-based growth of the euro area economy. Our monetary policy measures continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by rising wages. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the expansion in global activity is expected to continue, supporting euro area exports.","This assessment is broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.0% in 2018, 1.8% in 2019 and 1.7% in 2020. Compared with the June 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down slightly for 2018 and 2019, mainly due to a somewhat weaker contribution from foreign demand.","The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.0% in August 2018, down from 2.1% in July. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets, which is pushing up wage growth. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and rising wage growth.","This assessment is also broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2018, 2019 and 2020, which is unchanged from the June 2018 Eurosystem staff macroeconomic projections.","Turning to the monetary analysis, broad money (M3) growth declined to 4.0% in July 2018, from 4.5% in June. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 4.1% in July 2018, while the annual growth rate of loans to households stood at 3.0%, both unchanged from June.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’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 urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the new monthly pace of €15 billion until the end of December 2018. We anticipate that, subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.","Incoming information, while somewhat weaker than expected, remains overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation pressures. The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases. At the same time, uncertainties relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in both the first and the second quarter of 2018. Incoming information, while somewhat weaker than expected, remains overall consistent with our baseline scenario of an ongoing broad-based economic expansion, supported by domestic demand and continued improvements in the labour market. Some recent sector-specific developments are having an impact on the near-term growth profile. Our monetary policy measures continue to underpin domestic demand. Private consumption is fostered by ongoing employment growth and rising wages. At the same time, business investment is supported by solid domestic demand, favourable financing conditions and corporate profitability. Housing investment remains robust. In addition, the expansion in global activity is expected to continue supporting euro area exports, though at a slower pace.","The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent.","Euro area annual HICP inflation increased to 2.1% in September 2018, from 2.0% in August, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level over the coming months. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.","Turning to the monetary analysis, broad money (M3) growth stood at 3.5% in September 2018, after 3.4% in August. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The growth of loans to the private sector strengthened further, continuing the upward trend observed since the beginning of 2014. The annual growth rate of loans to non-financial corporations rose to 4.3% in September 2018, from 4.1% in August, while the annual growth rate of loans to households stood at 3.1%, unchanged from the previous month. The euro area bank lending survey for the third quarter of 2018 indicates that loan growth continues to be supported by increasing demand across all loan categories and favorable bank lending conditions for loans to enterprises and loans for house purchase.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’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 urges specific and decisive steps to complete the banking union and the capital markets union.","We are now at your disposal for questions.","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 President of the Eurogroup, Mr Centeno.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Regarding non-standard monetary policy measures, our net purchases under the asset purchase programme (APP) will end in December 2018. At the same time, we are enhancing our forward guidance on reinvestment. Accordingly, 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.","While incoming information has been weaker than expected, reflecting softer external demand but also some country and sector-specific factors, the underlying strength of domestic demand continues to underpin the euro area expansion and gradually rising inflation pressures. This supports our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after the end of our net asset purchases. At the same time, uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. Our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets, continues to provide the necessary degree of monetary accommodation for the sustained convergence of inflation to our aim. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.2%, quarter on quarter, in the third quarter of 2018, following growth of 0.4% in the previous two quarters. The latest data and survey results have been weaker than expected, reflecting a diminishing contribution from external demand and some country and sector-specific factors. While some of these factors are likely to unwind, this may suggest some slower growth momentum ahead. At the same time, domestic demand, also backed by our accommodative monetary policy stance, continues to underpin the economic expansion in the euro area. The strength of the labour market, as reflected in ongoing employment gains and rising wages, still supports private consumption. Moreover, business investment is benefiting from domestic demand, favourable financing conditions and improving balance sheets. Residential investment remains robust. In addition, the expansion in global activity is still expected to continue, supporting euro area exports, although at a slower pace.","This assessment is broadly reflected in the December 2018 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.9% in 2018, 1.7% in 2019, 1.7% in 2020 and 1.5% in 2021. Compared with the September 2018 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised slightly down in 2018 and 2019.","The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. However, the balance of risks is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.","According to Eurostat’s flash estimate, euro area annual HICP inflation declined to 2.0% in November 2018, from 2.2% in October, reflecting mainly a decline in energy inflation. On the basis of current futures prices for oil, headline inflation is likely to decrease over the coming months. Measures of underlying inflation remain generally muted, but domestic cost pressures are continuing to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets, which is pushing up wage growth. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.","This assessment is also broadly reflected in the December 2018 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.8% in 2018, 1.6% in 2019, 1.7% in 2020 and 1.8% in 2021. Compared with the September 2018 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised slightly up for 2018 and down for 2019.","Turning to the monetary analysis, broad money (M3) growth stood at 3.9% in October 2018, after 3.6% in September. Apart from some volatility in monthly flows, M3 growth continues to be supported by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","In line with the upward trend observed since the beginning of 2014, the growth of loans to the private sector continues to support the economic expansion. The annual growth rate of loans to non-financial corporations stood at 3.9% in October 2018, after 4.3% in September, while the annual growth rate of loans to households remained unchanged at 3.2%. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the Governing Council reiterates the need for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’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.","Further information on the technical parameters of the reinvestments will be released at 15:30 CET on the ECB’s website.","We are now at your disposal for questions.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Regarding non-standard monetary policy measures, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.","The incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment. At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. This supports our confidence in the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus remains essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This will be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.2%, quarter on quarter, in the third quarter of 2018, following growth of 0.4% in the previous two quarters. Incoming data have continued to be weaker than expected as a result of a slowdown in external demand compounded by some country and sector-specific factors. While the impact of some of these factors is expected to fade, the near-term growth momentum is likely to be weaker than previously anticipated. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, lower energy prices, and the ongoing – albeit somewhat slower – expansion in global activity.","The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.","Euro area annual HICP inflation declined to 1.6% in December 2018, from 1.9% in November, reflecting mainly lower energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline further over the coming months. Measures of underlying inflation remain generally muted, but labour cost pressures are continuing to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.","Turning to the monetary analysis, broad money (M3) growth moderated to 3.7% in November 2018, after 3.9% in October. M3 growth continues to be backed by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The annual growth rate of loans to non-financial corporations stood at 4.0% in November 2018, after 3.9% in October, while the annual growth rate of loans to households remained broadly unchanged at 3.3%. The euro area bank lending survey for the fourth quarter of 2018 suggests that overall bank lending conditions remained favourable, following an extended period of net easing, and demand for bank credit continued to rise, thereby underpinning loan growth.","The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the Governing Council reiterates the need for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’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.","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 Vice-President, Mr Dombrovskis.","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 the pursuit of its price stability objective.","First, we decided to keep the key ECB interest rates unchanged. We now expect them to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.","Third, we decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO‑III will feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III will be communicated in due course.","Fourth, we will continue conducting our lending operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021.","Today’s monetary policy decisions were taken to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term. While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year. The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment. Moreover, underlying inflation continues to be muted. The weaker economic momentum is slowing the adjustment of inflation towards our aim. At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. Today’s decisions will support the further build-up of domestic price pressures and headline inflation developments over the medium term. Significant monetary policy stimulus will continue to be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.2%, quarter on quarter, in the fourth quarter of 2018, following growth of 0.1% in the third quarter. Incoming data have continued to be weak, in particular in the manufacturing sector, reflecting the slowdown in external demand compounded by some country and sector-specific factors. The impact of these factors is turning out to be somewhat longer-lasting, which suggests that the near-term growth outlook will be weaker than previously anticipated. Looking ahead, the effect of these adverse factors is expected to unwind. The euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, and the ongoing – albeit somewhat slower – expansion in global activity.","This assessment is broadly reflected in the March 2019 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. Compared with the December 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down substantially in 2019 and slightly in 2020.","The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.5% in February 2019, after 1.4% in January, reflecting somewhat higher energy and food price inflation. On the basis of current futures prices for oil, headline inflation is likely to remain at around current levels before declining towards the end of year. Measures of underlying inflation remain generally muted, but labour cost pressures have strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.","This assessment is also broadly reflected in the March 2019 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.2% in 2019, 1.5% in 2020 and 1.6% in 2021. Compared with the December 2018 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down across the projection horizon, reflecting in particular the more subdued near-term growth outlook.","Turning to the monetary analysis, broad money (M3) growth decreased to 3.8% in January 2019, from 4.1% in December 2018. M3 growth continues to be backed by bank credit creation, notwithstanding a recent moderation in credit dynamics. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The annual growth rate of loans to non-financial corporations declined to 3.3% in January 2019, from 3.9% in December 2018, reflecting a base effect but also, in some countries, the typical lagged reaction to the slowdown in economic activity, while the annual growth rate of loans to households remained at 3.2%. Borrowing conditions for firms and households are still favourable, as the monetary policy measures put in place since June 2014 continue to support access to financing, in particular for small and medium-sized enterprises. The policy measures decided today, and in particular the new series of TLTROs, will help to ensure that bank lending conditions remain favourable going forward.","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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. This is particularly important in view of the overall limited implementation of the 2018 country-specific recommendations, as recently communicated by the European Commission. Regarding fiscal policies, the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers are providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should continue to increase 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.","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. We continue to expect them to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","We intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.","The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Details on the precise terms of the new series of targeted longer-term refinancing operations (TLTROs) will be communicated at one of our forthcoming meetings. In particular, the pricing of the new TLTRO-III operations will take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook. In the context of our regular assessment, we will also consider whether the preservation of the favourable implications of negative interest rates for the economy requires the mitigation of their possible side effects, if any, on bank intermediation.","The information that has become available since the last Governing Council meeting in early March confirms slower growth momentum extending into the current year. While there are signs that some of the idiosyncratic domestic factors dampening growth are fading, global headwinds continue to weigh on euro area growth developments. The persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, is leaving marks on economic sentiment. At the same time, further employment gains and rising wages continue to underpin the resilience of the domestic economy and gradually rising inflation pressures. However, an ample degree of monetary accommodation remains necessary to safeguard favourable financing conditions and support the economic expansion, and thus to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus is being provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP rose by 0.2%, quarter on quarter, in the fourth quarter of 2018, following an increase of 0.1% in the third quarter. Incoming data continue to be weak, especially for the manufacturing sector, mainly on account of the slowdown in external demand, which has been compounded by some country and sector-specific factors. As the impact of these factors is turning out to be somewhat longer-lasting, the slower growth momentum is expected to extend into the current year. Looking ahead, the effect of these adverse factors is expected to unwind. The euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, and the ongoing – albeit somewhat slower – expansion in global activity.","The risks surrounding the euro area growth outlook remain tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.","According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.4% in March 2019, after 1.5% in February, reflecting mainly a decline in food, services and non-energy industrial goods price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline over the coming months. Measures of underlying inflation remain generally muted, but labour cost pressures have strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.","Turning to the monetary analysis, broad money (M3) growth increased to 4.3% in February 2019, from 3.8% in January. Looking through some volatility in monthly flows, M3 growth continues to be backed by bank credit creation, notwithstanding a recent moderation in credit dynamics. The narrow monetary aggregate M1 remained the main contributor to broad money growth.","The annual growth rate of loans to non-financial corporations rebounded to 3.7% in February 2019, from 3.4% in January, reflecting mainly a base effect. Looking through short-term volatility, the annual growth rate of loans to non-financial corporations has moderated in recent months, reflecting the typical lagged reaction to the slowdown in economic growth. At the same time, the annual growth rate of loans to households remained broadly unchanged at 3.3% in February. The euro area bank lending survey for the first quarter of 2019 suggests that overall bank lending conditions remained favourable.","Our monetary policy measures, including the new series of TLTROs that we announced in March, 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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers are providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. 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.","Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Chairman of the Board Vasiliauskas for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.","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 the pursuit of its price stability objective.","First, we decided to keep the key ECB interest rates unchanged. We now expect them to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.","Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.","Third, regarding the modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III), we decided that the interest rate in each operation will be set at a level that is 10 basis points above 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 will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points.","A press release with further details of the terms of TLTRO III will be published at 15:30 CET today.","The Governing Council also assessed that, at this point in time, the positive contribution of negative interest rates to the accommodative monetary policy stance and to the sustained convergence of inflation is not undermined by possible side effects on bank-based intermediation. However, we will continue to monitor carefully the bank-based transmission channel of monetary policy and the case for mitigating measures.","Today’s monetary policy decisions were taken to provide the monetary accommodation necessary for inflation to remain on a sustained path towards levels that are below, but close to, 2% over the medium term. Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment.","At the same time, further employment gains and increasing wages continue to underpin the resilience of the euro area economy and gradually rising inflation. Today’s policy measures ensure that financial conditions will remain very favourable, supporting the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term. Looking ahead, the Governing Council is determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP rose by 0.4%, quarter on quarter, in the first quarter of 2019, following an increase of 0.2% in the fourth quarter of 2018. However, incoming economic data and survey information point to somewhat weaker growth in the second and third quarters of this year. This reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are weighing, in particular, on the euro area manufacturing sector. At the same time, the euro area services and construction sectors are showing resilience and the labour market is continuing to improve. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, the mildly expansionary euro area fiscal stance, further employment gains and rising wages, and the ongoing – albeit somewhat slower – growth in global activity.","This assessment is broadly reflected in the June 2019 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.2% in 2019, 1.4% in 2020 and 1.4% in 2021. Compared with the March 2019 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised up by 0.1 percentage points for 2019 and has been revised down by 0.2 percentage points for 2020 and by 0.1 percentage points for 2021.","The risks surrounding the euro area growth outlook remain tilted to the downside, on account of 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 1.2% in May 2019, after 1.7% in April, reflecting mainly lower energy and services price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline over the coming months, before rising again towards the end of year. Looking through the recent volatility due to temporary factors, measures of underlying inflation remain generally muted, but labour cost pressures continue to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and stronger wage growth.","This assessment is also broadly reflected in the June 2019 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.3% in 2019, 1.4% in 2020 and 1.6% in 2021. Compared with the March 2019 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised up by 0.1 percentage points for 2019 and revised down by 0.1 percentage points for 2020.","Turning to the monetary analysis, broad money (M3) growth stood at 4.7% in April 2019, after 4.6% in March. 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 increased to 3.9% in April 2019, from 3.6% in March. Beyond short-term volatility, the annual growth rate of loans to non-financial corporations has moderated somewhat in recent months from its peak in September 2018, reflecting the typical lagged reaction to the slowdown in economic growth observed over the course of 2018. The annual growth rate of loans to households stood at 3.4% in April, compared with 3.3% in March, continuing its gradual improvement.","The monetary policy measures taken today, including TLTRO III, 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 and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. The 2019 country-specific recommendations should serve as the relevant signpost. Regarding fiscal policies, the mildly expansionary euro area fiscal stance is providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. 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.","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 Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term.","We intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.","The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of our aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.","In this context, we have tasked the relevant Eurosystem Committees with examining options, including ways to reinforce our forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.","Incoming information since the last Governing Council meeting in early June indicates that, while further employment gains and increasing wages continue to underpin the resilience of the economy, softening global growth dynamics and weak international trade are still weighing on the euro area outlook. Moreover, the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets, is dampening economic sentiment, notably in the manufacturing sector. In this environment, inflationary pressures remain muted and indicators of inflation expectations have declined. Therefore, a significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favourable and support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a rise of 0.2% in the fourth quarter of 2018, euro area real GDP increased by 0.4%, quarter on quarter, in the first quarter of 2019. Incoming economic data and survey information continue to point to somewhat slower growth in the second and third quarters of this year. This mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector. At the same time, activity levels in the services and construction sectors are resilient and the labour market is still improving. Looking ahead, the euro area expansion will continue to be 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.","The risks surrounding the euro area growth outlook remain tilted to the downside, reflecting the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets.","Euro area annual HICP inflation increased to 1.3% in June 2019, from 1.2 % in May, as higher HICP inflation excluding food and energy more than offset lower energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline over the coming months, before rising again towards the end of the year. Looking through the recent volatility due to temporary factors, measures of underlying inflation remain generally muted. Indicators of inflation expectations have declined. While labour cost pressures have strengthened and broadened amid high levels of capacity utilisation and tightening labour markets, the pass-through of cost pressures 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 stronger wage growth.","Turning to the monetary analysis, broad money (M3) growth stood at 4.5% in June 2019, after 4.8% in May. 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 3.8% in June 2019. Notwithstanding some moderation from the peak recorded in September 2018, the annual growth rate of loans to non-financial corporations continues to be robust. The annual growth rate of loans to households also remained unchanged at 3.3% in June, continuing its gradual improvement. Overall, loan growth is still benefiting from historically low bank lending rates. The euro area bank lending survey for the second quarter of 2019 indicates that loan growth continued to be supported by increasing demand across all loan categories. At the same time, credit standards for loans to enterprises tightened in the second quarter amid concerns about the economic outlook, while they remained broadly unchanged for loans for house purchase.","Our monetary policy measures, including the forthcoming new series of targeted longer-term refinancing operations (TLTRO III), 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 and reducing vulnerabilities. The implementation of structural reforms 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 providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. 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.","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 key ECB interest rates, we decided to lower the interest rate on the 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 economic analysis. Euro 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.","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 Vice-President, Mr Dombrovskis, and the incoming President, Ms Lagarde.","Based on our regular economic and monetary analyses, we 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.","As decided at our last meeting in September, we will restart net purchases under our 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.","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.","The Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. In particular, the Governing Council’s forward guidance will ensure that financial conditions adjust in accordance with changes to the inflation outlook. In any case, the Governing Council 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.","The incoming data since the last Governing Council meeting in early September confirm our previous assessment of a protracted weakness in euro area growth dynamics, the persistence of prominent downside risks and muted inflation pressures. At the same time, ongoing employment growth and increasing wages continue to underpin the resilience of the euro area economy. The comprehensive package of policy measures that we decided at our last meeting provides substantial monetary stimulus, which will contribute to a further easing in borrowing conditions for firms and households. This will 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 economic analysis. Euro area real GDP growth was confirmed at 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 second half of this year. This slowdown in growth mainly reflects the ongoing weakness of international trade in an environment of persistent global uncertainties, which continue to weigh on the euro area manufacturing sector and are dampening investment growth.","At the same time, the services and construction sectors remain resilient, despite some moderation. The euro area expansion is supported by favourable financing conditions, further employment gains in conjunction with rising wages, the mildly expansionary euro area fiscal stance and the ongoing – albeit somewhat slower – growth in global activity.","The risks surrounding the euro area growth outlook remain on the downside. In particular, these risks pertain to the prolonged presence of uncertainties, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets.","Euro area annual HICP inflation decreased from 1.0% in August 2019 to 0.8% in September, reflecting lower food and energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline slightly further before rising again at 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 have strengthened amid tighter labour markets, the weaker growth momentum is delaying their pass-through to inflation. Over the medium term inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion and robust wage growth.","Turning to the monetary analysis, broad money (M3) growth increased to 5.7% in August 2019, after 5.1% in July. 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 growth of loans to firms and households remained solid, benefiting from the continued pass-through of our accommodative monetary policy stance to bank lending rates. The annual growth rate of loans to non-financial corporations increased to 4.3% in August, from 4.0% in July 2019, while the annual growth rate of loans to households remained unchanged at 3.4% in August. The euro area bank lending survey for the third quarter of 2019 indicates a slight easing of credit standards and increasing demand for loans to households, while demand for loans to firms remained broadly stable. Our accommodative monetary policy stance 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 and meet structural balance targets, which will create the conditions for automatic stabilisers to operate freely. All countries should intensify 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.","Ladies and gentlemen, welcome to our press conference. Today is the first time that I have had the privilege and pleasure of chairing the monetary policy meeting of the Governing Council of the ECB. I am delighted to proceed now with reporting on the outcome of our meeting, together with the Vice-President. The Governing Council meeting was also attended by the Commission Executive Vice-President, Mr Dombrovskis.","Based on our regular economic and monetary analyses, we 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.","On 1 November we restarted net purchases under our asset purchase programme (APP) at a monthly pace of €20 billion. 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.","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.","The incoming data since the last Governing Council meeting in late October point to continued muted inflation pressures and weak euro area growth dynamics, although there are some initial signs of stabilisation in the growth slowdown and of a mild increase in underlying inflation in line with previous expectations. Ongoing employment growth and increasing wages continue to underpin the resilience of the euro area economy.","The comprehensive package of policy measures that the Governing Council decided in September provides substantial monetary stimulus, which ensures favourable financing conditions for all sectors of the economy. In particular, easier borrowing conditions for firms and households are underpinning consumer spending and business investment. This will support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, the robust convergence of inflation to our medium-term aim.","In the light of the subdued inflation outlook, the Governing Council reiterated the need for monetary policy to remain highly accommodative for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. We will, therefore, closely monitor inflation developments and the impact of the unfolding monetary policy measures on the economy. Our forward guidance will ensure that financial conditions adjust in accordance with changes to the inflation outlook. In any case, the Governing Council 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. Euro area real GDP growth was confirmed at 0.2%, quarter on quarter, in the third quarter of 2019, unchanged from the previous quarter. The ongoing weakness of international trade in an environment of persistent global uncertainties continues to weigh on the euro area manufacturing sector and is dampening investment growth. At the same time, incoming economic data and survey information, while remaining weak overall, point to some stabilisation in the slowdown of economic growth in the euro area. The services and construction sectors remain resilient, despite some moderation in the latter half of 2019. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains in conjunction with 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 December 2019 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.2% in 2019, 1.1% in 2020 and 1.4% in both 2021 and 2022. Compared with the September 2019 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised down slightly for 2020.","The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become somewhat less pronounced.","According to Eurostat’s flash estimate, euro area annual HICP inflation increased from 0.7% in October 2019 to 1.0% in November, reflecting mainly higher services and food price inflation. On the basis of current futures prices for oil, headline inflation is likely to rise somewhat in the coming months. Indicators of inflation expectations stand at low levels. Measures of underlying inflation have remained generally muted, although there are some indications of a mild increase in line with previous expectations. While labour cost pressures have strengthened amid tighter labour markets, the weaker growth momentum is delaying their pass-through to inflation. Over the medium term, inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion and solid wage growth.","This assessment is also broadly reflected in the December 2019 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.2% in 2019, 1.1% in 2020, 1.4% in 2021 and 1.6% in 2022. Compared with the September 2019 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised up slightly for 2020 and down slightly for 2021, mainly driven by the expected future path of energy prices.","Turning to the monetary analysis, broad money (M3) growth stood at 5.6% in October 2019, unchanged from the previous month. Sustained rates of broad money growth 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 on the components side.","The growth of loans to firms and households remained solid, benefiting from the continued pass-through of our accommodative monetary policy stance to bank lending rates. The annual growth rate of loans to non-financial corporations increased to 3.8% in October, up from 3.6% in September, while the annual growth rate of loans to households continued on its gradual upward path, reaching 3.5% in October. Our accommodative monetary policy stance will help to safeguard very favourable bank lending conditions and will continue to support access to financing, across all economic sectors 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 still necessary for the continued robust 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 euro area fiscal stance is expected to remain mildly expansionary in 2020, thus providing support to economic activity. In view of the weakened economic outlook, the Governing Council welcomes the Eurogroup’s call for differentiated fiscal responses and its readiness to coordinate. Governments with fiscal space should be ready to act in an effective and timely manner. In countries where public debt is high, governments need to pursue prudent policies and meet structural balance targets, which will create the conditions for automatic stabilisers to operate freely. All countries should intensify 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.","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. 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 to make net purchases under our asset purchase programme (APP) at a monthly pace of €20 billion. 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.","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.","Today the Governing Council also decided to launch a review of the ECB’s monetary policy strategy. Further details about the scope and timetable of the review will be published in a press release today at 15:30 CET.","The incoming data since our last meeting are in line with our baseline scenario of ongoing, but moderate, growth of the euro area economy. In particular, the weakness in the manufacturing sector remains a drag on euro area growth momentum. However, ongoing, albeit decelerating, employment growth and increasing wages continue to support the resilience of the euro area economy. While inflation developments remain subdued overall, there are some signs of a moderate increase in underlying inflation in line with expectations.","The unfolding monetary policy measures are underpinning favourable financing conditions for all sectors of the economy. In particular, easier borrowing conditions for firms and households are supporting consumer spending and business investment. This will sustain the euro area expansion, the build-up of domestic price pressures and, thus, the robust convergence of inflation to our medium-term aim.","At the same time, in the light of the continued subdued inflation outlook, monetary policy has to remain highly accommodative for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. We will, therefore, closely monitor inflation developments and the impact of the unfolding monetary policy measures on the economy. Our forward guidance will ensure that financial conditions adjust in accordance with changes to the inflation outlook. In any case, the Governing Council 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. Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2019, following growth of 0.2% in the second quarter. This pattern of moderate growth reflects the ongoing weakness of international trade in an environment of continued global uncertainties, which has particularly affected the euro area manufacturing sector and has also dampened investment growth. At the same time, the services and construction sectors remain more resilient, despite some moderation in the latter half of 2019. Incoming economic data and survey information point to some stabilisation in euro area growth dynamics, with near-term growth expected to be similar to rates observed in previous quarters. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains in conjunction with rising wages, the mildly expansionary euro area fiscal stance and the ongoing – albeit somewhat slower – growth in global activity.","The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding.","Euro area annual HICP inflation increased to 1.3% in December 2019, from 1.0% in November, reflecting mainly higher energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to hover around current levels in the coming months. While indicators of inflation expectations remain at low levels, recently they have either stabilised or ticked up slightly. Measures of underlying inflation have remained generally muted, although there are further indications of a moderate increase in line with previous expectations. While labour cost pressures have strengthened amid tighter labour markets, the weaker growth momentum is delaying their pass-through to inflation. Over the medium term, inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion and solid wage growth.","Turning to the monetary analysis, broad money (M3) growth stood at 5.6% in November 2019, broadly unchanged since August. Sustained rates of broad money growth 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 on the components side.","The growth of loans to firms and households remained solid, benefiting from the ongoing support provided by our accommodative monetary policy stance, which is reflected in very low bank lending rates. While the annual growth rate of loans to households remained unchanged from October, at 3.5% in November, the annual growth rate of loans to non-financial corporations moderated to 3.4% in November, from 3.8% in October, likely reflecting some lagged reaction to the past weakening in the economy. These developments are also visible in the results of the euro area bank lending survey for the fourth quarter of 2019, which indicate weakening demand for loans to firms, while demand for loans to households for house purchase continued to increase. However, credit standards for both loans to firms and loans to households for house purchase remained broadly unchanged, pointing to still favourable credit supply conditions. Overall, our accommodative monetary policy stance will help to safeguard very favourable bank lending conditions and will continue to support access to financing across all economic sectors 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 still necessary for the continued robust 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 euro area fiscal stance is expected to continue to provide some support to economic activity. In view of the weak economic outlook, the Governing Council welcomes the Eurogroup’s call in December for differentiated fiscal responses and its readiness to coordinate. Governments with fiscal space should be ready to act in an effective and timely manner. In countries where public debt is high, governments need to pursue prudent policies and meet structural balance targets, which will create the conditions for automatic stabilisers to operate freely. All countries should intensify 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 ready to take your questions.","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 (COVID-19) 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.","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.","The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime. Measures to contain the spread of the coronavirus (COVID-19) have largely halted economic activity in all the countries of the euro area and across the globe. Survey indicators for consumer and business sentiment have plunged, suggesting a sharp contraction in economic growth and a profound deterioration in labour market conditions. Given the high uncertainty surrounding the ultimate extent of the economic fallout, growth scenarios produced by ECB staff suggest that euro area GDP could fall by between 5% and 12% this year, depending crucially on the duration of the containment measures and the success of policies to mitigate the economic consequences for businesses and workers. As the containment measures are gradually lifted, these scenarios foresee a recovery in economic activity, although its speed and scale remain highly uncertain. Inflation has declined as a result of the sharp fall in oil prices and slightly lower HICP inflation excluding energy and food.","The decisive and targeted policy measures that we have taken since early March have provided crucial support to the euro area economy and especially to the sectors most exposed to the crisis. In particular, our measures are supporting liquidity conditions and helping to sustain the flow of credit to households and firms, especially small and medium-sized enterprises (SMEs), and to maintain favourable financing conditions for all sectors and jurisdictions.","We welcome the measures taken by euro area governments and the European institutions to ensure sufficient healthcare resources and to provide support to affected companies, workers and households. At the same time, continued and ambitious efforts are needed, notably through joint and coordinated policy action, to guard against downside risks and to underpin the recovery.","In line with our mandate, the Governing Council is determined to continue to support households and firms in the face of the current economic disruption and heightened uncertainty, in order to safeguard medium-term price stability.","Accordingly, the Governing Council decided today to further ease the conditions on our targeted longer-term refinancing operations (TLTRO III). Specifically, we decided to reduce the interest rate on TLTRO III operations during the period from June 2020 to June 2021 to 50 basis points below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reaches the lending performance threshold, the interest rate over the period from June 2020 to June 2021 will now be 50 basis points below the average deposit facility rate prevailing over the same period.","We also decided on a new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. The PELTROs consist of seven additional refinancing operations commencing in May 2020 and maturing in a staggered sequence between July and September 2021 in line with the duration of our collateral easing measures. They will be carried out as fixed rate tender procedures with full allotment, with an interest rate that is 25 basis points below the average rate on the main refinancing operations prevailing over the life of each PELTRO.","Further details on the amendments made to the terms of TLTRO III and on our new PELTROs will be published in dedicated press releases this afternoon at 15:30 CET.","Since the end of March we have been conducting purchases under our new pandemic emergency purchase programme (PEPP), which has an overall envelope of €750 billion, to ease the overall monetary policy stance and to counter the severe risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus pandemic. These purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. We will conduct net asset purchases under the PEPP until the Governing Council judges that the coronavirus crisis phase is over, but in any case until the end of this year.","Moreover, 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 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.","In addition, we 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.","Together with the substantial monetary policy stimulus already in place, these measures will support liquidity and funding conditions and help to preserve the smooth provision of credit to the real economy. At the same time, in the current rapidly evolving economic environment, 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. We are, therefore, fully prepared to increase the size of the PEPP and adjust its composition, by as much as necessary and for as long as needed. In any case, 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 economic indicators and survey results covering the period since the coronavirus spread to the euro area have shown an unprecedented decline, pointing to a significant contraction in euro area economic activity and to rapidly deteriorating labour markets. The coronavirus pandemic and the associated containment measures have severely affected the manufacturing and services sectors, taking a toll on the productive capacity of the euro area economy and on domestic demand. In the first quarter of 2020, which was only partially affected by the spread of the coronavirus, euro area real GDP decreased by 3.8%, quarter on quarter, reflecting the impact of the lockdown measures in the final weeks of the quarter. The sharp downturn in economic activity in April suggests that the impact is likely to be even more severe in the second quarter. Looking beyond the immediate disruption stemming from the coronavirus pandemic, euro area growth is expected to resume as the containment measures are gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption in global activity.","Given the highly uncertain duration of the pandemic, the likely extent and duration of the imminent recession and the subsequent recovery are difficult to predict. However, without pre-empting the forthcoming Eurosystem staff macroeconomic projections, which will be published in June, growth scenarios produced by ECB staff suggest that euro area GDP could fall by between 5% and 12% this year, followed by a recovery and normalisation of growth in subsequent years. The extent of the contraction and the recovery will depend crucially on the duration and the success of the containment measures, how far supply capacity and domestic demand are permanently affected, and the success of policies in mitigating the adverse impact on incomes and employment.","According to Eurostat’s flash estimate, euro area annual HICP inflation decreased from 0.7% in March to 0.4% in April, largely driven by lower energy price inflation, but also slightly lower HICP inflation excluding energy and food. On the basis of the sharp decline in current and futures prices for oil, headline inflation is likely to decline considerably further over the coming months. The sharp downturn in economic activity is expected to lead to negative effects on underlying inflation over the coming months. However, the medium-term implications of the coronavirus pandemic for inflation are surrounded by high uncertainty, given that downward pressures linked to weaker demand may be partially offset by upward pressures related to supply disruptions. Market-based indicators of longer-term inflation expectations have remained at depressed levels. Even though survey-based indicators of inflation expectations have declined over the short and medium term, longer-term expectations have been less affected.","Turning to the monetary analysis, broad money (M3) growth increased to 7.5% in March 2020, from 5.5% in February. Money growth reflects bank credit creation for the private sector, which is driven to a large extent by drawing on credit lines, and low opportunity costs of holding M3 relative to other financial instruments, while heightened economic uncertainty appears to have triggered a shift towards monetary holdings, likely 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 have also been shaped by the impact of the coronavirus. The annual growth rate of loans to households stood at 3.4% in March 2020, after 3.7% in February, while the annual growth rate of loans to non-financial corporations stood at 5.4% in March, after 3.0% in February. These developments are also clearly visible in the results of the euro area bank lending survey for the first quarter of 2020, which indicate a surge in firms’ demand for loans and for drawing on credit lines to meet liquidity needs for working capital, while financing needs for fixed investment declined. Demand for loans to households for house purchase increased less than in the previous quarter. Credit standards for loans to firms tightened slightly, while credit standards for loans to households tightened more strongly. In both cases, this was related to the deterioration in the economic outlook and a decline in the creditworthiness of firms and households. At the same time, banks expect an easing of credit standards for loans to firms in the second quarter of 2020.","Our policy measures, in particular the more favourable terms for TLTRO III operations and the collateral easing measures, should encourage banks to extend loans to all private sector entities. Together with the credit support measures adopted by national governments and European institutions, they support ongoing access to financing, including for those most affected by the ramifications of the coronavirus 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 is critical, in view of the sharp contraction in the euro area economy. Measures taken should as much as possible be targeted and temporary in nature in response to the pandemic emergency. We welcome the endorsement by the European Council of the Eurogroup agreement on the three safety nets for workers, businesses and sovereigns, amounting to a package worth €540 billion. At the same time, the Governing Council urges further strong and timely efforts to prepare and support the recovery. In this regard, we welcome the European Council agreement to work towards establishing a recovery fund dedicated to dealing with this unprecedented crisis.","We are now ready to take your questions.","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 confirms that the euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus (COVID-19) pandemic and the measures to contain it. Severe job and income losses and exceptionally elevated uncertainty about the economic outlook have led to a significant fall in consumer spending and investment. While survey data and real-time indicators for economic activity have shown some signs of a bottoming-out alongside the gradual easing of the containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding two months. The June Eurosystem staff macroeconomic projections see growth declining at an unprecedented pace in the second quarter of this year, before rebounding again in the second half, crucially helped by the sizeable support from fiscal and monetary policy. Nonetheless, the projections entail a substantial downward revision to both the level of economic activity and the inflation outlook over the whole projection horizon, though the baseline is surrounded by an exceptional degree of uncertainty. While headline inflation is suppressed by lower energy prices, price pressures are expected to remain subdued on account of the sharp decline in real GDP and the associated significant increase in economic slack.","In line with its mandate, the Governing Council is determined to ensure the necessary degree of monetary accommodation and a smooth transmission of monetary policy across sectors and countries. Accordingly, we decided on a set of monetary policy measures to support the economy during its gradual reopening and to safeguard medium-term price stability.","First, the Governing Council decided to increase the envelope for the pandemic emergency purchase programme (PEPP) by €600 billion to a total of €1,350 billion. In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households. 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.","Second, we decided to extend the horizon for net purchases under the PEPP to at least the end of June 2021. In any case, we will conduct net asset purchases under the PEPP until the Governing Council judges that the coronavirus crisis phase is over.","Third, the Governing Council decided to reinvest the maturing principal payments from 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.","Fourth, 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.","Fifth, 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.","Sixth, we 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.","Together with the substantial monetary policy stimulus already in place, today’s decisions will 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, in order to underpin the recovery of the economy from the coronavirus fallout. At the same time, in the current rapidly evolving economic environment, 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. The latest economic indicators and survey results confirm a sharp contraction of the euro area economy and rapidly deteriorating labour market conditions. The coronavirus pandemic and the necessary containment measures have severely affected both the manufacturing and services sectors, taking a toll on the productive capacity of the euro area economy and on domestic demand. In the first quarter of 2020, when containment measures were only in place from mid-March in most countries, euro area real GDP decreased by 3.8%, quarter on quarter. Information from surveys, high-frequency indicators and incoming hard data all point to a further significant contraction of real GDP in the second quarter. Most recent indicators suggest some bottoming-out of the downturn in May as parts of the economy gradually reopen. Accordingly, 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 the overall speed and scale of the rebound remains highly uncertain.","This assessment is also broadly reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area. In the baseline scenario of the projections, annual real GDP is expected to fall by 8.7% in 2020 and to rebound by 5.2% in 2021 and by 3.3% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised substantially downwards by 9.5 percentage points in 2020 and revised upwards by 3.9 percentage points in 2021 and 1.9 percentage points in 2022.","Given the exceptional uncertainty currently surrounding the outlook, the projections also include two alternative scenarios, which we will publish on our website following this press conference. In general, the extent of the contraction and the recovery will depend crucially on the duration and the 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 sees the balance of risks around the baseline projection to the downside.","According to Eurostat’s flash estimate, euro area annual HICP inflation decreased to 0.1% in May, down from 0.3% in April, mainly on account of lower energy price inflation. On the basis of current and futures prices for oil, headline inflation is likely to decline somewhat further over the coming months and to remain subdued until the end of the year. 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. Market-based indicators of longer-term inflation expectations have remained at depressed levels. While survey-based indicators of inflation expectations have declined over the short and medium term, longer-term expectations have been less affected.","This assessment is also reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in the baseline scenario at 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised downwards by 0.8 percentage points in 2020, 0.6 percentage points in 2021 and 0.3 percentage points in 2022.","Turning to the monetary analysis, broad money (M3) growth increased to 8.3% in April 2020, from 7.5% in March. Strong money growth reflects bank credit creation, which is 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 6.6% in April 2020, up from 5.5% in March, reflecting firms’ need to finance their ongoing expenditures and working capital in the context of rapidly declining revenues. At the same time, the annual growth rate of loans to households decreased to 3.0% in April, from 3.4% in March, amid consumption constraints due to the containment measures, declining confidence and a deteriorating labour market.","Our policy measures, in particular the very favourable terms for our targeted longer-term refinancing operations (TLTRO III), should encourage banks to extend loans to all private sector entities. Together with the measures adopted by national governments and European institutions, they support ongoing access to financing, including for those most affected by the ramifications of the coronavirus 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 should as much as possible be targeted and temporary in nature in response to the pandemic emergency. 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 proposal for a recovery plan dedicated to supporting the regions and sectors most severely hit by the pandemic, to strengthening the Single Market and to building a lasting and prosperous recovery.","We are now ready to take your questions.","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. Market-based 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 monetary analysis, broad money (M3) growth increased to 8.9% in May 2020, 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 structural policies conceived and implemented at the national 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.","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.","The incoming data since our last monetary policy meeting in July suggest a strong rebound in activity broadly in line with previous expectations, although the level of activity remains well below the levels prevailing before the coronavirus (COVID-19) pandemic. While activity in the manufacturing sector has continued to improve, momentum in the services sector has slowed somewhat recently. The strength of the recovery remains surrounded by significant uncertainty, as it continues to be highly dependent on the future evolution of the pandemic and the success of containment policies. Euro area domestic demand has recorded a significant recovery from low levels, although elevated uncertainty about the economic outlook continues to weigh on consumer spending and business investment. Headline inflation is being dampened by low energy prices and weak price pressures in the context of subdued demand and significant labour market 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 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 downward impact of the pandemic on 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, the Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook. It 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. Euro area real GDP contracted by 11.8%, quarter on quarter, in the second quarter of 2020. Incoming data and survey results indicate a continued recovery of the euro area economy and point to a strong rebound in GDP growth in the third quarter. Alongside a significant rebound in industrial and services production, there are signs of a notable recovery in consumption. Recently, momentum has slowed in the services sector compared with the manufacturing sector, which is also visible in survey results for August. The increases in coronavirus infection rates during the summer months constitute headwinds to the short-term outlook. Looking ahead, a further sustained recovery remains highly dependent on the evolution of the pandemic and the success of containment policies. While the uncertainty related to the evolution of the pandemic will likely dampen the strength of the recovery in the labour market and in consumption and investment, the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a strengthening in global activity and demand.","This assessment is broadly reflected in the September 2020 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP growth at ‑8.0% in 2020, 5.0% in 2021 and 3.2% in 2022. Compared with the June 2020 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised up for 2020 and is largely unchanged for 2021 and 2022.","Given the exceptional uncertainty currently surrounding the outlook, the projections include two alternative scenarios, which we will publish on our website following this press conference. Overall, the balance of risks to the euro area growth outlook is seen to remain on the downside. This assessment largely reflects the still uncertain economic and financial implications of the pandemic.","According to Eurostat’s flash estimate, euro area annual HICP inflation decreased to ‑0.2% in August, from 0.4% in July. 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 remain negative over the coming months before turning positive again in early 2021. Moreover, in the near term price pressures will remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints. Over the medium term, a recovery in demand, supported by accommodative monetary and fiscal policies, will put upward pressure on inflation. Market-based indicators of longer-term inflation expectations have returned to their pre-pandemic levels, but still remain very subdued, while survey-based measures remain at low levels.","This assessment is broadly reflected in the September 2020 ECB staff macroeconomic projections for the euro area, which foresee annual inflation at 0.3% in 2020, 1.0% in 2021 and 1.3% in 2022. Compared with the June 2020 Eurosystem staff macroeconomic projections, the outlook for inflation is unchanged for 2020, has been revised up for 2021, and is unchanged for 2022. The unchanged projection for inflation in 2022 masks an upward revision to inflation excluding energy and food – in part reflecting the positive impact of the monetary and fiscal policy measures – which was largely offset by the revised path of energy prices.","Turning to the monetary analysis, broad money (M3) growth continued to rise, reaching 10.2% in July 2020, after 9.2% in June. Strong money growth reflects domestic credit creation and the ongoing asset purchases by the Eurosystem, as well as precautionary considerations which foster a heightened preference for liquidity in the money-holding sector. 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. Following strong increases in the early months of the pandemic, the annual growth rate of loans to non-financial corporations remained broadly stable in July, standing at 7.0%, compared with 7.1% in June. High rates of corporate loan growth continue to mirror elevated liquidity needs of firms to finance their ongoing expenditures and working capital and to further build liquidity buffers, although the rebound in economic activity has resulted in some recovery in their revenues. The annual growth rate of loans to households also remained stable at 3.0% in July – the same rate as observed since April 2020. Growth in loans to the private sector continues to benefit from historically low bank lending rates.","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. Fiscal 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 total of €540 billion, provide important funding support in this context. The Governing Council also strongly welcomes the Next Generation EU package of €750 billion, which has the potential to significantly support the regions and sectors hardest hit by the pandemic, strengthen the Single Market and build a lasting and prosperous recovery.","In order to fully reach its potential, the package will need to be firmly rooted in sound structural policies conceived and implemented at the national 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 revitalise our economies, with a focus on boosting investment in priority areas such as the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 29 October 2020","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.","The resurgence in coronavirus (COVID-19) infections presents renewed challenges to public health and the growth prospects of the euro area and global economies. Incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected, after a strong, yet partial and uneven, rebound in economic activity over the summer months. The rise in COVID-19 cases and the associated intensification of containment measures is weighing on activity, constituting a clear deterioration in the near-term outlook. In fact, while activity in the manufacturing sector has continued to recover, activity in the services sector has been slowing visibly. Although fiscal policy measures are supporting households and firms, consumers are cautious in the light of the pandemic and its ramifications for employment and earnings. Moreover, weaker balance sheets and increased uncertainty about the economic outlook are weighing on business investment. Headline inflation is being dampened by low energy prices and muted underlying price pressures in the context of weak demand and significant slack in labour and product markets.","The monetary policy measures that we have taken since early March are helping to preserve favourable financing conditions for all sectors and jurisdictions across the euro area, thereby providing crucial support to underpin economic activity and to safeguard medium-term price stability. At the same time, in the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate. The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path. This will foster the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry.","In the meantime, we decided to reconfirm our 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 percent 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 downward impact of the pandemic on 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, our third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP contracted by 11.8 percent, quarter on quarter, in the second quarter of 2020. Following the trough in April 2020, the euro area economy rebounded strongly in the third quarter, making up about half of the contraction in the first half of the year. The significant surge in coronavirus infection rates and the associated intensification of containment measures since the summer constitute clear headwinds to the short-term outlook. In fact, recent hard data, survey results and high-frequency indicators point to a significant softening in economic activity in the final quarter of the year. Moreover, economic developments continue to be uneven across sectors. In particular, activity in the services sector is slowing again as it is the sector most affected by the new restrictions on social activities and mobility. Looking ahead, while the uncertainty related to the evolution of the pandemic will likely dampen the strength of the recovery in the labour market and in consumption and investment, the euro area economy should continue to be supported by favourable financing conditions and an expansionary fiscal stance.","Overall, the risks surrounding the euro area growth outlook are clearly tilted to the downside. This largely reflects the recent resurgence in COVID-19 infections, the associated intensification of containment measures and a highly uncertain timeline of the pandemic and its implications for economic and financial conditions.","Euro area annual inflation decreased to -0.3 percent in September, from -0.2 percent in August, reflecting developments in the prices of energy, non-energy industrial goods and services. On the basis of oil price dynamics and taking into account the temporary reduction in German VAT, headline inflation is likely to remain negative until early 2021. Moreover, near-term price pressures will remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to lower wage pressures and the appreciation of the euro exchange rate. Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term. Market-based indicators and survey-based measures of longer-term inflation expectations remain broadly unchanged at low levels.","Turning to the monetary analysis, broad money (M3) growth rose to 10.4 percent in September 2020, from 9.5 percent in August, thus remaining well above the levels recorded before the COVID-19 pandemic. Strong money growth continues to reflect domestic credit expansion and the ongoing asset purchases by the Eurosystem, as well as precautionary considerations which foster a heightened preference for liquidity in the money-holding sector. 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 COVID-19 pandemic on economic activity. Following strong increases in the early months of the pandemic, the annual growth rate of loans to non-financial corporations stood at 7.1 percent in September, unchanged from August. This, however, masks a moderation in recent monthly loan flows. The annual growth rate of loans to households edged up to 3.1 percent in September, from 3.0 percent in August. Growth in loans to the private sector continues to benefit from historically low bank lending rates.","According to our bank lending survey for the third quarter of 2020, credit conditions on loans to firms tightened. While banks indicated that their funding and balance sheet conditions remain supportive, higher risk perceptions could weigh on their attitude towards loan creation. Surveyed banks reported a fall in firms’ loan demand in the third quarter, reflecting a decline in emergency liquidity needs and weakening corporate investment. The survey indicates an increase in households’ net demand for loans in the third quarter, while also suggesting the intention to tighten credit standards for households.","Overall, our policy measures, together with the measures adopted by national governments and European institutions, remain essential 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 percent 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 and the reduction in private demand. While fiscal measures taken in response to the pandemic emergency should, as much as possible, be targeted and temporary in nature, weak demand from firms and households and the heightened risk of a delayed recovery warrant continued support from national fiscal policies. The three safety nets endorsed by the European Council for workers, businesses and sovereigns provide important funding support in this context.","The Governing Council recognises the key role of the Next Generation EU package and stresses the importance of it becoming operational without delay. Provided the funds are deployed for productive public spending and accompanied by productivity-enhancing structural policies, Next Generation EU will contribute to a faster, stronger and more uniform recovery and will increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transition.","We are now ready to take your questions.","Frankfurt am Main, 10 December 2020","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.","While the rebound of economic activity in the third quarter was stronger than expected and the prospects for the roll-out of vaccines are encouraging, the pandemic continues to pose serious risks to public health and to the euro area and global economies. The resurgence in COVID-19 cases and the associated containment measures are significantly restricting euro area economic activity, which is expected to have contracted in the fourth quarter of 2020. While activity in the manufacturing sector continues to hold up well, services activity is being severely curbed by the increase in infection rates and the new restrictions on social interaction and mobility. Inflation remains very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data and our staff projections suggest a more pronounced near-term impact of the pandemic on the economy and a more protracted weakness in inflation than previously envisaged.","In view of the economic fallout from the resurgence of the pandemic, today the Governing Council recalibrated its monetary policy instruments as follows:","First, 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 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.","Second, we decided to increase the envelope of the pandemic emergency purchase programme (PEPP) by €500 billion to a total of €1,850 billion. We also extended the horizon for net purchases under the PEPP to at least the end of March 2022. In any case, we will conduct net purchases until the Governing Council judges that the coronavirus crisis phase is over.","We will conduct our purchases under the PEPP to preserve favourable financing conditions over this extended period. We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.","The extension of our PEPP purchases over a longer horizon reflects the prolonged fallout from the pandemic for the economy and inflation. It allows for a continuous market presence and more durable support from our monetary stimulus. Preserving favourable financing conditions over the pandemic period will help to reduce uncertainty and bolster confidence, thereby encouraging consumer spending and business investment, and, ultimately, underpinning the economic recovery and helping to offset the downward impact of the pandemic on the projected path of inflation.","We also decided to extend the reinvestment of principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.","Third, the Governing Council decided to further recalibrate the conditions of the third series of targeted longer-term refinancing operations (TLTRO III). Specifically, we decided to extend the period over which considerably more favourable terms will apply by twelve months, to June 2022. We will also conduct three additional operations between June and December 2021. Moreover, we decided to raise the total amount that counterparties will be entitled to borrow in TLTRO III operations from 50 per cent to 55 per cent of their stock of eligible loans. In order to provide an incentive for banks to sustain the current level of bank lending, the recalibrated TLTRO III borrowing conditions will be made available only to banks that achieve a new lending performance target. The extension of the pandemic-related low interest rate period under TLTRO III, the addition of more operations and the increase in the amount that can potentially be borrowed will preserve the very attractive funding conditions for banks. This will help to ensure that they can continue to offer favourable lending conditions and have ample liquidity to extend loans to households and firms.","Fourth, we decided to extend to June 2022 the duration of the set of collateral easing measures adopted by the Governing Council on 7 and 22 April 2020. The extension of these measures will continue to ensure that banks can make full use of the Eurosystem’s liquidity operations, most notably the recalibrated TLTROs. The Governing Council will reassess the collateral easing measures before June 2022, ensuring that Eurosystem counterparties’ participation in TLTRO III operations is not adversely affected.","Fifth, the Governing Council also decided to offer four additional pandemic emergency longer-term refinancing operations (PELTROs) in 2021, which will continue to provide an effective liquidity backstop.","Sixth, net purchases under our asset purchase programme (APP) will continue at a monthly pace of €20 billion. 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 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.","Seventh, the Eurosystem repo facility for central banks (EUREP) and all temporary swap and repo lines with non-euro area central banks will be extended until March 2022.","Finally, we decided to continue conducting our regular lending operations as fixed rate tender procedures with full allotment at the prevailing conditions for as long as necessary.","Separate press releases with further details of the measures taken by the Governing Council will be published this afternoon at 15:30 CET.","The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability. At the same time, uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We therefore continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a sharp contraction in the first half of 2020, euro area real GDP rebounded strongly and rose by 12.5 per cent, quarter on quarter, in the third quarter, although remaining well below pre-pandemic levels. The second wave of the pandemic and the associated intensification of containment measures observed since mid-October are expected to result in a renewed significant decline in activity in the fourth quarter, although to a much lesser extent than observed in the second quarter of this year.","Economic developments continue to be uneven across sectors, with activity in the services sector being more adversely affected by the new restrictions on social interaction and mobility than activity in the industrial sector. Although fiscal policy measures are supporting households and firms, consumers remain cautious in the light of the pandemic and its ramifications for employment and earnings. Moreover, weaker balance sheets and uncertainty about the economic outlook are weighing on business investment.","Looking ahead, the news of prospective roll-outs of vaccines allows for greater confidence in the assumption of a gradual resolution of the health crisis. However, it will take time until widespread immunity is achieved, while further resurgences in infections, with challenges to public health and economic prospects, cannot be ruled out. Over the medium term, the recovery of the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures are lifted and uncertainty recedes.","This assessment is broadly reflected in the baseline scenario of the December 2020 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP growth at -7.3 per cent in 2020, 3.9 per cent in 2021, 4.2 per cent in 2022 and 2.1 per cent in 2023. Compared with the September 2020 ECB staff macroeconomic projections, the outlook for economic activity has been revised down in the short term, but is seen to broadly recover to the level projected in the September baseline scenario over the medium term.","Overall, the risks surrounding the euro area growth outlook remain tilted to the downside, but have become less pronounced. While the news about the prospects for vaccine roll-outs in the near future is encouraging, downside risks remain related to the implications of the pandemic for economic and financial conditions.","According to Eurostat’s flash estimate, euro area annual inflation remained unchanged at -0.3 per cent in November. On the basis of oil price dynamics and taking into account the temporary reduction in the German VAT rate, headline inflation is likely to remain negative until early 2021. Thereafter, it is expected to increase owing to the end of the temporary VAT reduction in Germany and upward base effects in energy price inflation. At the same time, underlying price pressures are expected to remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to low wage pressures and the appreciation of the euro exchange rate. Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term. Market-based indicators and survey-based measures of longer-term inflation expectations remain at low levels.","This assessment is broadly reflected in the baseline scenario of the December 2020 Eurosystem staff macroeconomic projections for the euro area, which foresees annual inflation at 0.2 per cent in 2020, 1.0 per cent in 2021, 1.1 per cent in 2022 and 1.4 per cent in 2023. Compared with the September 2020 ECB staff macroeconomic projections, the outlook for inflation has been revised down for 2020 and 2022.","Turning to the monetary analysis, the annual growth of broad money (M3) remained broadly unchanged at 10.5 per cent in October 2020. Strong money growth has been supported by the ongoing asset purchases by the Eurosystem, which have become the largest source of money creation. In the context of a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money, the narrow monetary aggregate M1 continues to be the main contributor to broad money growth.","The growth of lending to the private sector has plateaued, while still recording higher growth rates than prior to the COVID-19 pandemic. Following strong increases in the early months of the pandemic, the annual growth rate of loans to non-financial corporations fell to 6.8 per cent in October, after 7.1 per cent in September. This deceleration has occurred in the context of abating emergency liquidity needs, weak investment and tighter credit conditions on loans to firms, as signalled by our bank lending survey for the euro area for the third quarter of 2020. The annual growth rate of loans to households stood at 3.1 per cent in October, unchanged from September.","Overall, our policy measures, together with the measures adopted by national governments and European institutions, remain essential to support bank lending conditions and access to financing, in particular 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent 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. Fiscal measures taken in response to the pandemic emergency should, as much as possible, be targeted and temporary in nature. At the same time, weak demand from firms and households and the heightened risk of a delayed recovery in the light of the new lockdowns owing to the second wave of the pandemic warrant continued support from national fiscal policies. The three safety nets endorsed by the European Council for workers, businesses and sovereigns provide important funding support in this context.","The Governing Council recognises the key role of the Next Generation EU package and stresses the importance of it becoming operational without delay. It calls on Member States to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 21 January 2021","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.","The start of vaccination campaigns across the euro area is an important milestone in the resolution of the ongoing health crisis. Nonetheless, the pandemic continues to pose serious risks to public health and to the euro area and global economies. The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity. Activity in the manufacturing sector continues to hold up well, but services sector activity is being severely curbed, albeit to a lesser degree than during the first wave of the pandemic in early 2020. Output is likely to have contracted in the fourth quarter of 2020 and the intensification of the pandemic poses some downside risks to the short-term economic outlook. Inflation remains very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data confirm our previous baseline assessment of a pronounced near-term impact of the pandemic on the economy and a protracted weakness in inflation.","In this environment ample monetary stimulus remains essential to preserve favourable financing conditions over the pandemic period for all sectors of the economy. By helping to reduce uncertainty and bolster confidence, this will encourage consumer spending and business investment, underpinning economic activity and safeguarding medium-term price stability. Meanwhile, uncertainty remains high, including relating to the dynamics of the pandemic and the speed of vaccination campaigns. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.","Against this background, we decided to reconfirm our very accommodative monetary policy stance.","First, 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 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.","Second, we will continue our purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion. We will conduct net asset purchases under the PEPP until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over.","The purchases under the PEPP will be conducted to preserve favourable financing conditions over the pandemic period. We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.","We will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.","Third, net purchases under our asset purchase programme (APP) will continue at a monthly pace of €20 billion. 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 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.","Finally, we will continue to provide ample liquidity through our refinancing operations. In particular, our third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following a sharp contraction in the first half of 2020, euro area real GDP rebounded strongly and rose by 12.4 per cent, quarter on quarter, in the third quarter, although remaining well below pre-pandemic levels. Incoming economic data, surveys and high-frequency indicators suggest that the resurgence of the pandemic and the associated intensification of containment measures have likely led to a decline in activity in the fourth quarter of 2020 and are also expected to weigh on activity in the first quarter of this year. In sum, this is broadly in line with the latest baseline of the December 2020 macroeconomic projections.","Economic developments continue to be uneven across sectors, with the services sector being more adversely affected by the new restrictions on social interaction and mobility than the industrial sector. Although fiscal policy measures are continuing to support households and firms, consumers remain cautious in the light of the pandemic and its impact on employment and earnings. Moreover, weaker corporate balance sheets and uncertainty about the economic outlook are still weighing on business investment.","Looking ahead, the roll-out of vaccines, which started in late December, allows for greater confidence in the resolution of the health crisis. However, it will take time until widespread immunity is achieved, and further adverse developments related to the pandemic cannot be ruled out. Over the medium term, the recovery of the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures are lifted and uncertainty recedes.","Overall, the risks surrounding the euro area growth outlook remain tilted to the downside but less pronounced. The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging, but the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.","Euro area annual inflation remained unchanged at -0.3 per cent in December. On the basis of current energy price dynamics, headline inflation is likely to increase in the coming months, also supported by the end of the temporary VAT reduction in Germany. However, underlying price pressures are expected to remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to low wage pressures and the appreciation of the euro exchange rate. Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remain at low levels, although market-based indicators of inflation expectations have increased slightly.","Turning to the monetary analysis, the annual growth rate of broad money (M3) increased to 11.0 per cent in November 2020, from 10.5 per cent in October, reflecting a continued increase in deposit holdings. Strong money growth continued to be supported by the ongoing asset purchases by the Eurosystem, which remain the largest source of money creation. In the context of a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money, the narrow monetary aggregate M1 has remained the main contributor to broad money growth.","Developments in loans to the private sector were characterised by moderate lending to non-financial corporations and resilient lending to households. The monthly lending flow to non-financial corporations remained very modest in November, continuing the pattern observed since the end of the summer. At the same time, the annual growth rate remained broadly unchanged, at 6.9 per cent, still reflecting the very strong increase in lending in the first half of the year. The annual growth rate of loans to households remained broadly stable at 3.1 per cent in November, amid a sizeable positive monthly flow.","The new bank lending survey for the fourth quarter of 2020 reports a tightening of credit standards on loans to firms. This tightening was mainly driven by heightened risk perceptions among banks, in a context of continued uncertainty about the economic recovery and concerns about borrower creditworthiness. Surveyed banks also reported a fall in loan demand from firms in the fourth quarter. The survey also indicated a further increase in net demand from households for loans for house purchase in the fourth quarter, even though credit standards continued to tighten.","Overall, our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent 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. To this end, continued support from national fiscal policies is warranted given weak demand from firms and households relating to the worsening of the pandemic and the intensification of containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain targeted and temporary in nature. The three safety nets endorsed by the European Council for workers, businesses and governments provide important funding support.","The Governing Council recognises the key role of the Next Generation EU package and stresses the importance of it becoming operational without delay. It calls on Member States to accelerate the ratification process, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 11 March 2021","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 the meeting of the Governing Council, which was also attended by the Commission Executive Vice-President, Mr Dombrovskis.","While the overall economic situation is expected to improve over 2021, there remains uncertainty surrounding the near-term economic outlook, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns. The rebound in global demand and additional fiscal measures are supporting global and euro area activity. But persistently high rates of coronavirus (COVID-19) infection, the spread of virus mutations, and the associated extension and tightening of containment measures are weighing on euro area economic activity in the short term. Looking ahead, the ongoing vaccination campaigns, together with the envisaged gradual relaxation of containment measures, underpin the expectation of a firm rebound in economic activity in the course of 2021. Inflation has picked up over recent months mainly on account of some transitory factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of weak demand and significant slack in labour and product markets. While our latest staff projection exercise foresees a gradual increase in underlying inflation pressures, it confirms that the medium-term inflation outlook remains broadly unchanged from the staff projections in December 2020 and below our inflation aim.","In these conditions, preserving favourable financing conditions over the pandemic period remains essential. Financing conditions are defined by a holistic and multifaceted set of indicators, spanning the entire transmission chain of monetary policy from risk-free interest rates and sovereign yields to corporate bond yields and bank credit conditions. Market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. Banks use risk-free interest rates and sovereign bond yields as key references for determining credit conditions. If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy. This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.","Against this background, the Governing Council decided the following:","First, we will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.","We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.","We will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.","Second, net purchases under our asset purchase programme (APP) will continue at a monthly pace of €20 billion. 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 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.","Third, 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 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.","Finally, we will continue to provide ample liquidity through our refinancing operations. In particular, our third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households.","Preserving favourable financing conditions over the pandemic period for all sectors of the economy remains essential to underpin economic activity and safeguard medium-term price stability. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.","Let me now explain our assessment in greater detail, starting with the economic analysis. Following the strong rebound in growth in the third quarter of 2020, euro area real GDP declined by 0.7 per cent in the fourth quarter. Looking at the full year, real GDP is estimated to have contracted by 6.6 per cent in 2020, with the level of economic activity for the fourth quarter of the year standing 4.9 per cent below its pre-pandemic level at the end of 2019.","Incoming economic data, surveys and high-frequency indicators point to continued economic weakness in the first quarter of 2021 driven by the persistence of the pandemic and the associated containment measures. As a result, real GDP is likely to contract again in the first quarter of the year.","Economic developments continue to be uneven across countries and sectors, with the services sector being more adversely affected by the restrictions on social interaction and mobility than the industrial sector, which is recovering more quickly. Although fiscal policy measures are supporting households and firms, consumers remain cautious in the light of the pandemic and its impact on employment and earnings. Moreover, weaker corporate balance sheets and elevated uncertainty about the economic outlook are still weighing on business investment.","Looking ahead, the ongoing vaccination campaigns, together with the gradual relaxation of containment measures – barring any further adverse developments related to the pandemic – underpin the expectation of a firm rebound in economic activity in the course of 2021. Over the medium term, the recovery of the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures are gradually lifted.","This assessment is broadly reflected in the baseline scenario of the March 2021 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP growth at 4.0 per cent in 2021, 4.1 per cent in 2022 and 2.1 per cent in 2023. Compared with the December 2020 Eurosystem staff macroeconomic projections, the outlook for economic activity is broadly unchanged.","Overall, the risks surrounding the euro area growth outlook over the medium term have become more balanced, although downside risks remain in the near term. On the one hand, better prospects for global demand, bolstered by the sizeable fiscal stimulus, and the progress in vaccination campaigns are encouraging. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk.","Euro area annual inflation increased sharply to 0.9 per cent in January and February 2021, up from -0.3 per cent in December. The upswing in headline inflation reflects a number of idiosyncratic factors, such as the end of the temporary VAT rate reduction in Germany, delayed sales periods in some euro area countries and the impact of the stronger than usual changes in HICP weights for 2021, as well as higher energy price inflation. On the basis of current oil futures prices, headline inflation is likely to increase in the coming months, but some volatility is expected throughout the year reflecting the changing dynamics of the factors currently pushing inflation up. These factors can be expected to fade out of annual inflation rates early next year. Underlying price pressures are expected to increase somewhat this year due to current supply constraints and the recovery in domestic demand, although pressures are expected to remain subdued overall, also reflecting low wage pressures and the past appreciation of the euro. Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, will contribute to a gradual increase in inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remain at subdued levels, although market-based indicators have continued their gradual increase.","This assessment is broadly reflected in the baseline scenario of the March 2021 ECB staff macroeconomic projections for the euro area, which foresees annual inflation at 1.5 per cent in 2021, 1.2 per cent in 2022 and 1.4 per cent in 2023. Compared with the December 2020 Eurosystem staff macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022, largely due to temporary factors and higher energy price inflation, while it is unchanged for 2023.","Turning to the monetary analysis, the annual growth rate of broad money (M3) stood at 12.5 per cent in January 2021, after 12.4 per cent in December and 11.0 per cent in November 2020. Strong money growth continued to be supported by the ongoing asset purchases by the Eurosystem, which remain the largest source of money creation. The narrow monetary aggregate M1 has remained the main contributor to broad money growth, consistent with a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money.","Developments in loans to the private sector were characterised by somewhat weaker lending to non-financial corporations and resilient lending to households. The monthly lending flow to non-financial corporations continued the moderation observed since the end of the summer. At the same time, the annual growth rate remained broadly unchanged, at 7.0 per cent, after 7.1 per cent in December, still reflecting the very strong increase in lending in the first half of the year. The annual growth rate of loans to households remained broadly stable at 3.0 per cent in January, after 3.1 per cent in December, amid a solid positive monthly flow.","Overall, our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent 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. To this end, support from national fiscal policies should continue given weak demand from firms and households relating to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery. The three safety nets endorsed by the European Council for workers, businesses and governments provide important funding support.","The Governing Council recognises the key role of the Next Generation EU package and stresses the importance of it becoming operational without delay. It calls on Member States to ensure a timely ratification of the Own Resources Decision, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 22 April 2021","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 the meeting of the Governing Council.","While the recovery in global demand and the sizeable fiscal stimulus are supporting global and euro area activity, the near-term economic outlook remains clouded by uncertainty about the resurgence of the pandemic and the roll-out of vaccination campaigns. Persistently high rates of coronavirus (COVID-19) infection and the associated extension and tightening of containment measures continue to constrain economic activity in the short term. Looking ahead, progress with vaccination campaigns and the envisaged gradual relaxation of containment measures underpin the expectation of a firm rebound in economic activity in the course of 2021. Inflation has picked up over recent months on account of some idiosyncratic and temporary factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of significant economic slack and still weak demand.","Preserving favourable financing conditions over the pandemic period remains essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. Euro area financing conditions have remained broadly stable recently after the increase in market interest rates earlier in the year, but risks to wider financing conditions remain. Against this background, the Governing Council decided to reconfirm its 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 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.","We will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. Since the incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the March monetary policy meeting, the Governing Council expects purchases under the PEPP over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year.","We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.","We will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. 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. 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 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.","Finally, we will 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 high take-up of funds. The funding obtained through TLTRO III plays a crucial role in supporting bank lending to firms and households.","These measures help to preserve favourable financing conditions for all sectors of the economy and thereby underpin economic activity and safeguard medium-term price stability. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.","Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP declined by 0.7 per cent in the fourth quarter of 2020 to stand 4.9 per cent below its pre-pandemic level one year earlier. Incoming economic data, surveys and high-frequency indicators suggest that economic activity may have contracted again in the first quarter of this year, but point to a resumption of growth in the second quarter.","Business surveys indicate that the manufacturing sector continues to recover, supported by solid global demand. At the same time, restrictions on mobility and social interaction still limit activity in the services sector, although there are signs of a bottoming-out. Fiscal policy measures continue to support households and firms, but consumers remain cautious in view of the pandemic and its impact on employment and earnings. Despite weaker corporate balance sheets and elevated uncertainty about the economic outlook, business investment has shown resilience.","Looking ahead, the progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021. Over the medium term the recovery of the euro area economy is expected to be driven by a recovery in domestic and global demand, supported by favourable financing conditions and fiscal stimulus.","Overall, while the risks surrounding the euro area growth outlook over the near term continue to be on the downside, medium-term risks remain more balanced. On the one hand, better prospects for global demand – bolstered by the sizeable fiscal stimulus – and the progress with vaccination campaigns are encouraging. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk.","Euro area annual inflation increased to 1.3% in March 2021, from 0.9% in February, on account of a strong increase in energy price inflation that reflected both a sizeable upward base effect and a month-on-month increase. This increase more than offset decreases in food price inflation and in HICP inflation excluding energy and food. Headline inflation is likely to increase further in the coming months, but some volatility is expected throughout the year reflecting the changing dynamics of idiosyncratic and temporary factors. These factors can be expected to fade out of annual inflation rates early next year. Underlying price pressures are expected to increase somewhat this year, owing to short-term supply constraints and the recovery in domestic demand, although they remain subdued overall, in part reflecting low wage pressures, in the context of economic slack, and the appreciation of the euro exchange rate. Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, will contribute to a gradual increase in inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remain at subdued levels, although market-based indicators have continued their gradual increase.","Turning to the monetary analysis, the annual growth rate of broad money (M3) stood at 12.3 per cent in February 2021, after 12.5 per cent in January. Strong money growth continued to be supported by the ongoing asset purchases by the Eurosystem, as the largest source of money creation. The narrow monetary aggregate M1 has remained the main contributor to broad money growth, consistent with a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money.","Overall, lending to the private sector remained broadly unchanged. The monthly lending flow to non-financial corporations showed a modest pick-up in February compared with the previous month. This was also reflected in a slightly higher annual growth rate of 7.1 per cent, after 6.9 per cent in January. Monthly lending flows to households continued to be solid with the annual growth rate of loans to households remaining unchanged at 3.0 per cent in February. The latest euro area bank lending survey for the first quarter of 2021 reports a moderate tightening of credit standards for loans to firms, following more significant tightening in the previous two quarters. Heightened risk perceptions among banks were again the main contributor to the tightening, although their impact was less pronounced than in previous survey rounds. Surveyed banks also reported a renewed fall in demand for loans to firms, mainly driven by a continued decline in demand for financing for fixed investment. With regard to lending to households, the survey indicated lower demand for loans for house purchase, while the credit standards for these loans eased slightly, supported by competition among lenders.","Overall, our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent over the medium term.","Regarding fiscal policies, an ambitious and coordinated fiscal stance remains crucial, as premature withdrawal of fiscal support would risk delaying the recovery and amplifying the longer-term scarring effects. National fiscal policies should thus continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery of the euro area economy. The three safety nets endorsed by the European Council for workers, businesses and governments provide important funding support.","The Governing Council reiterates the key role of the Next Generation EU package and the urgency of it becoming operational without delay. It calls on Member States to ensure a timely ratification of the Own Resources Decision, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in improving economic structures and institutions and in accelerating the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 10 June 2021","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 the meeting of the Governing Council, which was also attended by the Commission Executive Vice-President, Mr Dombrovskis.","After the contraction in the first quarter of the year, the euro area economy is gradually reopening as the pandemic situation improves and vaccination campaigns make significant progress. The latest data signal a bounce-back in services activity and ongoing dynamism in manufacturing production. We expect economic activity to accelerate in the second half of this year as further containment measures are lifted. A pick-up in consumer spending, strong global demand and accommodative fiscal and monetary policies will lend crucial support to the recovery. At the same time, uncertainties remain, as the near-term economic outlook continues to depend on the course of the pandemic and on how the economy responds after reopening. Inflation has picked up over recent months, largely on account of base effects, transitory factors and an increase in energy prices. It is expected to rise further in the second half of the year, before declining as temporary factors fade out. Our new staff projections point to a gradual increase in underlying inflation pressures throughout the projection horizon, although the pressures remain subdued in the context of still significant economic slack that will only be absorbed gradually over the projection horizon. Headline inflation is expected to remain below our aim over the projection horizon.","Preserving favourable financing conditions over the pandemic period remains essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. Financing conditions for firms and households have remained broadly stable since our monetary policy meeting in March. However, market interest rates have increased further. While partly reflecting improved economic prospects, a sustained rise in market rates could translate into a tightening of wider financing conditions that are relevant for the entire economy. Such a tightening would be premature and would pose a risk to the ongoing economic recovery and the outlook for inflation.","Against this background, the Governing Council decided to confirm its 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 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.","We will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year.","We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.","We will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. 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. 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 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.","Finally, we will continue to provide ample liquidity through our refinancing operations. The funding obtained through the third series of targeted longer-term refinancing operations (TLTRO III) plays a crucial role in supporting bank lending to firms and households.","Our measures help to preserve favourable financing conditions for all sectors of the economy, which is needed for a sustained economic recovery and for safeguarding price stability. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.","Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of the year, euro area real GDP declined further, by 0.3 per cent, to stand 5.1 per cent below its pre-pandemic level of the fourth quarter of 2019. Business and consumer surveys and high-frequency indicators point to a sizeable improvement in activity in the second quarter of this year.","Business surveys indicate a strong recovery in services activity as infection numbers decline, which will allow a gradual normalisation of high-contact activities. Manufacturing production remains robust, supported by solid global demand, although supply-side bottlenecks could pose some headwinds for industrial activity in the near term. Indicators of consumer confidence are strengthening, suggesting a strong rebound in private consumption in the period ahead. Business investment shows resilience, despite weaker corporate balance sheets and the still uncertain economic outlook.","We expect growth to continue to improve strongly in the second half of 2021 as progress in vaccination campaigns allows a further relaxation of containment measures. Over the medium term, the recovery in the euro area economy is expected to be buoyed by stronger global and domestic demand, as well as by continued support from both monetary policy and fiscal policy.","This assessment is broadly reflected in the baseline scenario of the June 2021 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP growth at 4.6 per cent in 2021, 4.7 per cent in 2022 and 2.1 per cent in 2023. Compared with the March 2021 ECB staff macroeconomic projections, the outlook for economic activity has been revised up for 2021 and 2022, while it is unchanged for 2023.","Overall, we see the risks surrounding the euro area growth outlook as broadly balanced. On the one hand, an even stronger recovery could be predicated on brighter prospects for global demand and a faster-than-anticipated reduction in household savings once social and travel restrictions have been lifted. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk.","According to Eurostat’s flash release, euro area annual inflation increased from 1.3 per cent in March to 1.6 per cent in April and 2.0 per cent in May 2021. This rise was due mainly to a strong increase in energy price inflation, reflecting both sizeable upward base effects as well as month-on-month increases, and, to a lesser extent, a slight increase in non-energy industrial goods inflation. Headline inflation is likely to increase further towards the autumn, reflecting mainly the reversal of the temporary VAT reduction in Germany. Inflation is expected to decline again at the start of next year as temporary factors fade out and global energy prices moderate.","We expect underlying price pressures to increase somewhat this year owing to temporary supply constraints and the recovery in domestic demand. Nevertheless, the price pressures will likely remain subdued overall, in part reflecting low wage pressures, in the context of still significant economic slack, and the appreciation of the euro exchange rate.","Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative monetary and fiscal policies, will contribute to a gradual increase in underlying inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remain at subdued levels, although market-based indicators have continued to increase.","This assessment is broadly reflected in the baseline scenario of the June 2021 Eurosystem staff macroeconomic projections for the euro area, which foresees annual inflation at 1.9 per cent in 2021, 1.5 per cent in 2022 and 1.4 per cent in 2023. Compared with the March 2021 ECB staff macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022, largely owing to temporary factors and higher energy price inflation. It is unchanged for 2023, as the increase in underlying inflation is largely counterbalanced by an expected decline in energy price inflation. HICP inflation excluding energy and food is projected to increase from 1.1 per cent in 2021 to 1.3 per cent in 2022 and 1.4 per cent in 2023, revised up throughout the projection horizon compared with the March 2021 projection exercise.","Turning to the monetary analysis, the annual growth rate of broad money (M3) declined to 9.2 per cent in April 2021, from 10.0 per cent in March and 12.3 per cent in February. The deceleration in March and April was due partly to strong negative base effects as the large inflows in the initial phase of the pandemic crisis dropped out of the annual growth statistics. It also reflects a moderation in shorter-term monetary dynamics, mainly originating from weaker developments in deposits by households and firms in April and lower liquidity needs as the pandemic situation improves. The ongoing asset purchases by the Eurosystem continue to be the largest source of money creation. While also decelerating, the narrow monetary aggregate M1 has remained the main contributor to broad money growth. Its strong contribution is consistent with a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money.","The annual growth rate of loans to the private sector declined to 3.2 per cent in April, from 3.6 per cent in March and 4.5 per cent in February. This decline took place amid opposing dynamics in lending to non-financial corporations and to households. The annual growth rate of loans to non-financial corporations fell to 3.2 per cent in April, after 5.3 per cent in March and 7.0 per cent in February. The contraction reflects large negative base effects and some frontloading in loan creation in March relative to April. The annual growth rate of loans to households rose to 3.8 per cent in April, after 3.3 per cent in March and 3.0 per cent in February, supported by solid monthly flows and positive base effects.","Overall, our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by 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 to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent over the medium term.","Regarding fiscal policies, an ambitious and coordinated fiscal stance remains crucial, as a premature withdrawal of fiscal support would risk weakening the recovery and amplifying the longer-term scarring effects. National fiscal policies should thus continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures should remain temporary and countercyclical, while ensuring that they are sufficiently targeted in nature to address vulnerabilities effectively and to support a swift recovery in the euro area economy. The three safety nets endorsed by the European Council for workers, businesses and governments provide important funding support.","The Governing Council reiterates the key role of the Next Generation EU package. It calls on Member States to deploy the funds productively, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience as well as the growth potential of Member States’ economies. In doing so, the programme would support the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in improving economic structures and institutions and in accelerating the green and digital transitions.","We are now ready to take your questions.","Frankfurt am Main, 8 July 2021","The Vice-President and I are very pleased to welcome you to our special press conference. Yesterday the Governing Council unanimously approved the ECB’s new monetary policy strategy. This brings to a successful conclusion the strategic review that we have been conducting over the last 18 months, drawing on an immense collective effort by staff at the ECB and the national central banks of the euro area. We have worked within the existing Treaty and taken the ECB’s primary mandate of price stability as a given. The review has allowed us to challenge our thinking, engage with numerous stakeholders, reflect, discuss and reach common ground on how to adapt our strategy. The new strategy is reflected in the document entitled “The ECB’s monetary policy strategy statement” that was published earlier today. It is a strong foundation that will guide us in the conduct of monetary policy in the years to come. Let me explain the key elements of our new strategy in more detail.","To improve the clarity of our price stability objective, and with the aim of better anchoring inflation expectations, we have decided to amend our formulation of the objective. The Governing Council considers that price stability is best maintained by aiming for a two per cent inflation target over the medium term. A two per cent inflation target is consistent with standard definitions of price stability and provides a safety margin to protect the effectiveness of monetary policy in responding to disinflationary shocks and to guard against the risk of deflation. This specific quantitative target is clear and easy to communicate, and provides a strong anchor for inflation expectations, which is essential to maintain price stability. It replaces the previous double-key formulation of below, but close to, two per cent, which was widely seen as too elaborate and occasionally giving rise to misperceptions about the Governing Council’s aspirations. The new formulation removes any possible ambiguity and resolutely conveys that two per cent is not a ceiling. The Governing Council’s commitment to the two per cent target is symmetric. Symmetry means that the Governing Council considers negative and positive deviations of inflation from the target to be equally undesirable.","To maintain the symmetry of its inflation target, the Governing Council recognises the importance of taking into account the implications of the effective lower bound on nominal interest rates. In particular, when nominal interest rates tend to be low throughout the business cycle, like at present, the economy operates not too far from the lower bound. Episodes in which the policy rate is constrained at the lower bound are often associated with disinflationary pressure. Addressing this requires especially forceful or persistent monetary policy measures to avoid negative deviations from the inflation target becoming entrenched. In these conditions, in the face of large adverse shocks, the ECB’s policy response will, as appropriate and grounded in a careful proportionality analysis, include especially forceful monetary policy measures. In addition, closer to the effective lower bound, it may also call for a more persistent use of its monetary policy instruments. This may also imply a transitory period in which inflation is moderately above target.","The Governing Council judged that the Harmonised Index of Consumer Prices (HICP) remains the appropriate price measure for assessing the achievement of our price stability objective. At the same time, we have heard the calls of European citizens for a broader coverage of housing costs in the HICP. The Governing Council has therefore recommended a roadmap for the inclusion of owner-occupied housing in the HICP, while recognising that this is a multi-year project to be led by Eurostat. During the transition period, the main reference index for monetary policy will remain the current HICP, but initial estimates of owner-occupied housing costs will play a supplementary role alongside our set of broader inflation measures and will help us assess the contribution of housing costs to inflation.","Our new strategy confirms the medium-term orientation of our monetary policy, which, since the inception of the ECB, has been an important principle of the strategy. It recognises that monetary policy cannot and should not attempt to fine-tune short-term developments in inflation. Monetary policy affects the economy with variable time lags. The medium-term orientation allows us to be forward-looking and respond flexibly to fluctuations in output and inflation. Flexibility is important, since the appropriate policy response depends on the circumstances as well as on the source, magnitude and persistence of the shocks affecting the economy. The medium-term orientation also allows us to cater for other considerations relevant to the pursuit of price stability. Employment, financial stability risks and climate change are some of the areas that we looked into in greater depth during the strategy review.","We have also carefully reviewed the appropriateness of the instruments in our monetary policy toolkit. It is clear that the set of ECB policy rates – the rate on our main refinancing operations, the deposit facility rate and the marginal lending rate – will remain our primary instrument. But, in a low interest rate environment in which the policy rates are more likely to encounter and remain constrained at the lower bound, the ECB will continue to employ other instruments when the need arises. Forward guidance, asset purchases and longer-term refinancing operations over the past decade have helped mitigate the limitations generated by the lower bound and will remain an integral part of the ECB’s toolkit, to be used as appropriate.","We have also made important changes to our analytical framework. This framework provides the foundation for our monetary policy decisions, including the regular proportionality assessment of the effectiveness, efficiency and side effects of our measures. Historically, the ECB has been known for its “two pillars”, which identified risks to price stability as originating from two distinct domains: the “economic analysis” and the “monetary analysis”. These two sources of risks were cross-checked against each other to form an overall assessment. Our new strategy acknowledges the advantages of having two specialised areas of analysis on the economy, but also recognises the value of integrating the analysis, in a world in which there are multiple feedback channels from the monetary and financial spheres to the broader economy, and vice versa. This new integrated assessment builds on the evolution that our economic and monetary analyses have undergone over time. The monetary analysis has increasingly focused on assessing the transmission of monetary policy measures, as well as the risks to price stability from financial imbalances. Meanwhile – owing to a weakening of the link between monetary aggregates and inflation – the original focus of the monetary analysis has become less important. At the same time, the global financial crisis brought to the fore the relevance of macro-financial linkages that further emphasise the need for integrated analyses.","We have acknowledged that climate change is an existential challenge for the world, and it is of strategic importance for the ECB’s mandate. The Governing Council therefore decided to account explicitly for the implications of climate change and the carbon transition in our new strategy. The Governing Council today commits to an ambitious action plan, outlined in the dedicated press release. The action plan covers several key areas. First, we will further expand our analytical capacity in macroeconomic modelling and develop statistical indicators and new tools to assess the implications of climate change for monetary policy transmission and price stability. Second, the ECB will introduce environmental sustainability disclosure requirements for eligibility for collateral and asset purchases. Third, we will adapt our risk assessment framework, our corporate sector asset purchases and the collateral framework for climate-related risks.","During our review, we also addressed the communication of our monetary policy. We heard directly how our policies affect the lives of European citizens and their desire to better understand those policies. Our last review took place well before smartphones were around, so there was a strong case for enhancing our communication with the outside world. You will notice some changes in the coming weeks relating to our regular communication. For example, a new, more narrative-based, and more concise monetary policy statement will replace the introductory statement at our monetary policy press conferences. But also, our monetary policy communication geared towards the wider public will be adapted through a more visualised and more accessible approach. And, reflecting the successful experience with the listening events, the Governing Council intends to continue to interact on a regular basis with the public via Eurosystem outreach events.","The review of our strategy that we have just completed took place 18 years after the previous one. Looking ahead, the rapidly changing world that we live in means that we cannot wait for another 18 years before undertaking the next review. A regular review cycle, with the Governing Council periodically reassessing the appropriateness of its monetary policy strategy, will ensure that the strategy remains fit for purpose. It will also further enhance the ECB’s transparency and accountability to European citizens. We intend to carry out the next assessment in 2025.","The Governing Council yesterday also endorsed a longer explanatory overview note on the ECB’s monetary policy strategy, which will be published after the press conference.","We are now ready to take your questions.","Frankfurt am Main, 22 July 2021","Good afternoon, the Vice-President and I welcome you to our press conference.","At today’s meeting, the Governing Council focused on two main topics: first, the implications of our strategy review for our forward guidance on the key ECB interest rates; and, second, our assessment of the economy and our pandemic measures.","In our recent strategy review, we agreed a symmetric inflation target of two per cent over the medium term. Our policy rates have been close to their lower bound for some time and the medium-term outlook for inflation is still well below our target. In these conditions, the Governing Council today revised its forward guidance on interest rates. We did so to underline our commitment to maintain a persistently accommodative monetary policy stance to meet our inflation target.","In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.","Let me turn to the assessment of the economic outlook and our pandemic measures.","The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty. Inflation has picked up, although this increase is expected to be mostly temporary. The outlook for inflation over the medium term remains subdued.","We need to preserve favourable financing conditions for all sectors of the economy over the pandemic period. This is essential for the current rebound to turn into a lasting expansion and to offset the negative impact of the pandemic on inflation. Therefore, having confirmed our June assessment of financing conditions and the inflation outlook, we continue to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.","We also confirmed our other measures to support our price stability mandate, namely the level of the key ECB interest rates, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term.","I will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions.","The economy rebounded in the second quarter of the year and, as restrictions are eased, is on track for strong growth in the third quarter. We expect manufacturing to perform strongly, even though supply bottlenecks are holding back production in the near term. The reopening of large parts of the economy is supporting a vigorous bounce-back in the services sector. But the delta variant of the coronavirus could dampen this recovery in services, especially in tourism and hospitality.","As people return to shops and restaurants and resume travelling, consumer spending is rising. Better job prospects, increasing confidence and continued government support are reinforcing spending. The ongoing recovery in domestic and global demand is boosting optimism among businesses. This supports investment. For the first time since the start of the pandemic, our bank lending survey indicates that funding of fixed investment is an important factor driving the demand for loans to firms.","We expect economic activity to return to its pre-crisis level in the first quarter of next year. But there is still a long way to go before the damage to the economy caused by the pandemic is offset. The number of people in job retention schemes has been declining but remains high. Overall, there are still 3.3 million fewer people employed than before the pandemic, especially among the younger and lower skilled.","Ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy in supporting the recovery. In this context, the Next Generation EU programme has a key role to play. It will contribute to a stronger and uniform recovery across euro area countries. It will also accelerate the green and digital transitions and support necessary structural reforms that lift long-term growth.","Inflation was 1.9 per cent in June. We expect inflation to increase further over the coming months and to decline again next year. The current increase is largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary VAT reduction in Germany last year. By early 2022, the impact of these factors should fade out as they fall out of the year-on-year inflation calculation.","In the near term, the significant slack in the economy is holding back underlying inflationary pressures. Stronger demand and temporary cost pressures in the supply chain will put some upward pressure on prices. But weak wage growth and the past appreciation of the euro mean that price pressures will likely remain subdued for some time.","There is still some way to go before the fallout from the pandemic on inflation is eliminated. As the economy recovers, supported by our monetary policy measures, we expect inflation to rise over the medium term, although remaining below our target. While measures of longer-term inflation expectations have increased, they remain some distance from our two per cent target.","We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers spend more than currently expected and draw more rapidly on the savings they have built up during the pandemic. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. But growth could underperform our expectations if the pandemic intensifies or if supply shortages turn out to be more persistent and hold back production.","The recovery of growth and inflation still depends on favourable financing conditions. Market interest rates have declined since our last meeting. Financing conditions for most firms and households remain at favourable levels.","Bank lending rates for firms and households remain historically low. Firms are still well funded as a result of their borrowing in the first wave of the pandemic, which in part explains why lending to firms has slowed. By contrast, lending to households is holding up. Our most recent bank lending survey shows that credit conditions for both firms and households have stabilised. Liquidity remains abundant.","At the same time, the cost for firms of issuing equity is still high. Many firms and households have taken on more debt to weather the pandemic. Any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality of banks’ balance sheets. It remains essential to prevent balance sheet strains and tightening financing conditions from reinforcing each other.","Summing up, the euro area economy is rebounding strongly. But the outlook continues to depend on the course of the pandemic and progress with vaccinations. The current rise in inflation is expected to be largely temporary. Underlying price pressures will likely increase gradually, although leaving inflation over the medium term still well below our target. Our policy measures, including our revised forward guidance, will help the economy shift to a solid recovery and, ultimately, bring inflation to our two per cent target.","We are now ready to take your questions.","Frankfurt am Main, 9 September 2021","Good afternoon, the Vice-President and I welcome you to our press conference.","The rebound phase in the recovery of the euro area economy is increasingly advanced. Output is expected to exceed its pre-pandemic level by the end of the year. With more than 70 per cent of European adults fully vaccinated, the economy has largely reopened, allowing consumers to spend more and companies to increase production. While rising immunity to the coronavirus means that the impact of the pandemic is now less severe, the global spread of the Delta variant could yet delay the full reopening of the economy. The current increase in inflation is expected to be largely temporary and underlying price pressures are building up only slowly. The inflation outlook in our new staff projections has been revised slightly upwards, but in the medium term inflation is foreseen to remain well below our two per cent target.","Financing conditions for firms, households and the public sector have remained favourable since our previous quarterly assessment in June. Favourable financing conditions are essential for the economy to continue its recovery and to offset the negative impact of the pandemic on inflation.","Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters.","We also confirmed our other measures, namely the level of the key ECB interest rates, our forward guidance on their likely future evolution, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term.","I will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions.","The economy rebounded by 2.2 per cent in the second quarter of the year, which was more than expected. It is on track for strong growth in the third quarter. The recovery builds on the success of the vaccination campaigns in Europe, which have allowed a significant reopening of the economy.","With the lifting of restrictions, the services sector is benefiting from people returning to shops and restaurants and from the rebound in travel and tourism. Manufacturing is performing strongly, even though production continues to be held back by shortages of materials and equipment. The spread of the Delta variant has so far not required lockdown measures to be reimposed. But it could slow the recovery in global trade and the full reopening of the economy.","Consumer spending is increasing, although consumers remain somewhat cautious in the light of the pandemic developments. The labour market is also improving rapidly, which holds out the prospect of higher incomes and greater spending. Unemployment is declining and the number of people in job retention schemes has fallen by about 28 million from the peak last year. The recovery in domestic and global demand is further boosting optimism among firms, which is supporting business investment.","At the same time, there remains some way to go before the damage to the economy caused by the pandemic is overcome. There are still more than two million fewer people employed than before the pandemic, especially among the younger and lower skilled. The number of workers in job retention schemes also remains substantial.","To support the recovery, ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy. In particular, the Next Generation EU programme will help ensure a stronger and uniform recovery across euro area countries. It will also accelerate the green and digital transitions, support structural reforms and lift long-term growth.","We expect the economy to rebound firmly over the medium term. Our new staff projections foresee annual real GDP growth at 5.0 per cent in 2021, 4.6 per cent in 2022 and 2.1 per cent in 2023. Compared with our June staff projections, the outlook has improved for 2021 and is broadly unchanged for 2022 and 2023.","Inflation increased to 3.0 per cent in August. We expect inflation to rise further this autumn but to decline next year. This temporary upswing in inflation mainly reflects the strong increase in oil prices since around the middle of last year, the reversal of the temporary VAT reduction in Germany, delayed summer sales in 2020 and cost pressures that stem from temporary shortages of materials and equipment. In the course of 2022 these factors should ease or will fall out of the year-on-year inflation calculation.","Underlying inflation pressures have edged up. As the economy recovers further, and supported by our monetary policy measures, we expect underlying inflation to rise over the medium term. This increase is expected to be only gradual, since it will take time for the economy to return to operating at full capacity, and therefore wages are expected to grow only moderately. Measures of longer-term inflation expectations have continued to increase, but these remain some distance from our two per cent target.","The new staff projections foresee annual inflation at 2.2 per cent in 2021, 1.7 per cent in 2022 and 1.5 per cent in 2023, being revised up compared with the previous projections in June. Inflation excluding food and energy price inflation is projected to average 1.3 per cent in 2021, 1.4 per cent in 2022 and 1.5 per cent in 2023, also being revised up from the June projections.","We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than currently expected. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. If supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent. At the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production.","The recovery of growth and inflation still depends on favourable financing conditions for all sectors of the economy. Market interest rates have eased over the summer, but reversed recently. Overall, financing conditions for the economy remain favourable.","Bank lending rates for firms and households are at historically low levels. Lending to households is holding up, especially for house purchases. The somewhat slower growth of lending to firms is mainly due to the fact that firms are still well funded, because they borrowed heavily in the first wave of the pandemic. They have high cash holdings and are increasingly retaining earnings, which reduces the need for external funding. For larger firms, issuing bonds is an attractive alternative to bank loans. Solid bank balance sheets continue to ensure that sufficient credit is available.","However, many firms and households have taken on more debt during the pandemic. A deterioration in the economic outlook could threaten their financial health. This, in turn, would worsen the quality of banks’ balance sheets. Policy support remains essential to prevent balance sheet strains and tightening financing conditions from reinforcing each other.","Summing up, the euro area economy is clearly rebounding. However, the speed of the recovery continues to depend on the course of the pandemic and progress with vaccinations. The current rise in inflation is expected to be largely temporary and underlying price pressures will build up only gradually. The slight improvement in the medium-term inflation outlook and the current level of financing conditions allow favourable financing conditions to be maintained with a moderately lower pace of net asset purchases under the PEPP. Our policy measures, including our revised forward guidance on the key ECB interest rates, are key to helping the economy shift to a sustained recovery and, ultimately, to bringing inflation to our two per cent target.","We are now ready to take your questions.","Frankfurt am Main, 28 October 2021","Good afternoon, the Vice-President and I welcome you to our press conference.","The euro area economy continues to recover strongly, although momentum has moderated to some extent. Consumers continue to be confident and their spending remains strong. But shortages of materials, equipment and labour are holding back production in some sectors. Inflation is rising, primarily because of the surge in energy prices but also as the recovery in demand is outpacing constrained supply. We foresee inflation rising further in the near term, but then declining in the course of next year.","Market interest rates have increased since our last meeting in early September. However, overall financing conditions currently remain favourable for firms, households and the public sector. Favourable financing conditions are essential for the economy to continue its recovery and to counter the negative impact of the pandemic on the inflation path.","We continue to judge that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year.","We also confirmed our other measures, namely the level of the key ECB interest rates, our forward guidance on their likely future evolution, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term.","I will now outline in more detail how we see the economy and inflation developing and will then talk about our assessment of financial and monetary conditions.","The economy continued to grow strongly in the third quarter, even though momentum moderated to some extent. We still expect output to exceed its pre-pandemic level by the end of the year.","The grip of the pandemic on the economy has visibly weakened, with restrictions being lifted as a result of successful health measures and large numbers of people now vaccinated. This is supporting consumer spending, especially on entertainment, dining, travel and transportation. But higher energy prices may reduce purchasing power in the months to come.","The recovery in domestic and global demand is also supporting production and business investment. That said, shortages of materials, equipment and labour are holding back the manufacturing sector. Delivery times have lengthened considerably, and transport costs and energy prices have surged. These constraints are clouding the outlook for the coming quarters.","The labour market continues to improve. Unemployment has fallen and the number of people in job retention schemes is down significantly from the peak last year. This supports the prospect of higher incomes and increased spending. But, both the number of people in the labour force and the hours worked in the economy remain below their pre-pandemic levels.","To sustain the recovery, targeted and coordinated fiscal support should continue to complement monetary policy. This support will also help the economy adjust to the structural changes that are under way. An effective implementation of the Next Generation EU programme and the “Fit for 55” package will contribute to a stronger, greener and more even recovery across euro area countries.","Inflation increased to 3.4 per cent in September. We expect it to rise further this year. But while the current phase of higher inflation will last longer than originally expected, we expect inflation to decline in the course of next year.","The upswing in inflation largely reflects a combination of three factors. First, energy prices – especially for oil, gas and electricity – have risen sharply. In September, energy inflation accounted for about half of overall inflation. Second, prices are also going up because recovering demand related to the reopening of the economy is outpacing supply. These dynamics are especially visible in the prices of consumer services, as well as the prices of goods affected most strongly by supply shortages. And finally, base effects related to the end of the VAT cut in Germany are still contributing to higher inflation.","We expect the influence of all three factors to ease in the course of 2022 or to fall out of the year-on-year inflation calculation. As the recovery continues, the gradual return of the economy to full capacity will underpin a rise in wages over time. Market and survey-based measures of longer-term inflation expectations have moved closer to two per cent. These factors will support underlying inflation and the return of inflation to our target over the medium term.","The recovery continues to depend on the course of the pandemic and further progress with vaccinations. We see the risks to the economic outlook as broadly balanced. In the near term, supply bottlenecks and rising energy prices are the main risks to the pace of recovery and the outlook for inflation. If supply shortages and higher energy prices last longer, these could slow down the recovery. At the same time, if persistent bottlenecks feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, price pressures could become stronger. However, economic activity could outperform our expectations if consumers become more confident and save less than currently expected.","Growth and medium-term inflation dynamics still depend on favourable financing conditions for all sectors of the economy. Market interest rates have increased. Nevertheless, financing conditions for the economy remain favourable, not least because bank lending rates for firms and households remain at historically low levels. While there was a pick-up in September, lending to firms remains moderate. This continues to reflect the fact that firms generally need less external funding, since these have high cash holdings and are increasingly retaining their earnings. Lending to households remains strong, driven by demand for mortgages. Our most recent bank lending survey shows that credit conditions for firms stabilised and were supported – for the first time since 2018 – by a reduction in banks’ risk perceptions. By contrast, banks are taking a slightly more cautious approach to housing loans and have tightened their lending standards for these loans accordingly. Bank balance sheets continue to be supported by favourable funding conditions and remain solid.","Summing up, the euro area economy continues to recover strongly, although at a more moderate pace. Rising energy prices, the recovery in demand and supply bottlenecks are currently pushing up inflation. While inflation will take longer to decline than previously expected, we expect these factors to ease in the course of next year. We continue to foresee inflation in the medium term remaining below our two per cent target. Our policy measures, including our revised forward guidance on the key ECB interest rates, are crucial to helping the economy shift to a sustained recovery and, ultimately, to bringing inflation over the medium term to our target.","We are now ready to take your questions.","Frankfurt am Main, 16 December 2021","Good afternoon, the Vice-President and I welcome you to our press conference.","The euro area economy continues to recover and the labour market is improving, helped by ample policy support. Growth is moderating but we expect activity to pick up again strongly in the course of next year. The latest pandemic wave and the Omicron variant have prompted some countries to re-introduce tighter restrictions. Energy prices have gone up significantly. And in some industries, there are shortages of materials, equipment and labour. These factors are restraining economic activity and are a headwind for the near-term outlook. However, although the public health crisis is still ongoing, many people have been vaccinated and booster campaigns have accelerated. Overall, society has become better at coping with the pandemic waves and resulting constraints. This has lessened the pandemic impact on the economy. Inflation has risen sharply owing to the surge in energy prices, and also because demand is outpacing constrained supply in some sectors. Inflation is expected to remain elevated in the near term, but should ease in the course of next year. The inflation outlook has been revised up, but inflation is still projected to settle below our two per cent target over the projection horizon.","We judge that the progress on economic recovery and towards our medium-term inflation target permits a step-by-step reduction in the pace of our asset purchases over the coming quarters. But monetary accommodation is still needed for inflation to stabilise at our two per cent inflation target over the medium term. In view of the current uncertainty, we need to maintain flexibility and optionality in the conduct of monetary policy. With this is mind, the Governing Council took the following decisions:","First, in the first quarter of 2022, we expect to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) at a lower pace than in the previous quarter. We will discontinue net asset purchases under the PEPP at the end of March 2022.","Second, the Governing Council decided to extend the reinvestment horizon for the PEPP. It now intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.","Third, the pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of our monetary policy and made our efforts to achieve our goal more effective. Within our mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. In particular, in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time. This could include purchasing bonds issued by the Hellenic Republic over and above rollovers of redemptions in order to avoid an interruption of purchases in that jurisdiction, which could impair the transmission of monetary policy to the Greek economy while it is still recovering from the fallout of the pandemic. Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.","Fourth, in line with a step-by-step reduction in asset purchases and to ensure that the monetary policy stance remains consistent with inflation stabilising at our target over the medium term, we decided on a monthly net purchase pace of €40 billion in the second quarter and €30 billion in the third quarter under the asset purchase programme (APP). From October 2022 onwards, we will maintain net asset purchases under the APP at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of our policy rates. We expect net purchases to end shortly before we start raising the key ECB interest rates.","We also confirmed the level of the key ECB interest rates and our forward guidance on the future path of policy rates. This is crucial for maintaining the appropriate degree of accommodation to stabilise inflation at our two per cent inflation target over the medium term.","We will continue to monitor bank funding conditions and ensure that the maturing of TLTRO III operations does not hamper the smooth transmission of our monetary policy. We will also regularly assess how targeted lending operations are contributing to our monetary policy stance. As announced, we expect the special conditions applicable under TLTRO III to end in June next year. We will also assess the appropriate calibration of our two-tier system for reserve remuneration so that the negative interest rate policy does not limit banks’ intermediation capacity in an environment of ample excess liquidity.","The Governing Council stands ready to adjust all of its instruments, as appropriate and in either direction, to ensure that inflation stabilises at its two per cent target over the medium term.","I will now outline in more detail how we see developments in the economy and inflation. I will then outline our assessment of financial and monetary conditions.","We expect the economic recovery to continue, driven by robust domestic demand. The labour market is improving, with more people having jobs and fewer in job retention schemes. This supports the prospect of rising household income and consumption. The savings built up during the pandemic will also support consumption. The current fiscal and monetary policy support, together with a continued global recovery, should support growth.","Economic activity has been moderating over the final quarter of the year and this slower growth is likely to extend into the early part of next year. We now expect output to exceed its pre-pandemic level in the first quarter of 2022.","To cope with the current pandemic wave, some euro area countries have reintroduced tighter containment measures. This could delay the recovery, especially in travel, tourism, hospitality and entertainment. The pandemic is weighing on consumer and business confidence and the spread of new virus variants is creating extra uncertainty. In addition, rising energy costs are a headwind for consumption.","Shortages of equipment, materials and labour in some sectors are hampering production of manufactured goods, causing delays in construction and slowing down the recovery in some parts of the service sector. These bottlenecks will still be with us for some time, but they should ease during 2022.","Looking ahead, we expect growth to rebound strongly over the course of 2022. Our new Eurosystem staff projections foresee annual real GDP growth at 5.1 per cent in 2021, 4.2 per cent in 2022, 2.9 per cent in 2023 and 1.6 per cent in 2024. Compared with our September staff projections, the outlook has been revised down for 2022 and up for 2023.","Targeted and growth-friendly fiscal measures should continue to complement monetary policy. This support will also help the economy adjust to the structural changes that are under way. An effective implementation of the Next Generation EU programme and the “Fit for 55” package will contribute to a stronger, greener and more even recovery across euro area countries.","Inflation increased further to 4.9 per cent in November. It will remain above two per cent for most of 2022. Inflation is expected to remain elevated in the near term, but we expect it to decline in the course of next year.","The upswing in inflation primarily reflects a sharp rise in prices for fuel, gas and electricity. In November, energy inflation accounted for more than half of headline inflation. Demand also continues to outpace constrained supply in certain sectors. The consequences are especially visible in the prices of durable goods and those consumer services that have recently reopened. Base effects related to the end of the VAT cut in Germany are still contributing to higher inflation, but only until the end of the year.","There is uncertainty as to how long it will take for these issues to resolve. But, in the course of 2022, we expect energy prices to stabilise, consumption patterns to normalise, and price pressures stemming from global supply bottlenecks to subside.","Over time, the gradual return of the economy to full capacity and further improvements in the labour market should support faster growth in wages. Market and survey-based measures of longer-term inflation expectations have remained broadly stable since our last monetary policy meeting in October. But overall, these have moved closer to two per cent in recent months. These factors will help underlying inflation to move up and bring headline inflation up to our target over the medium term.","Our new staff projections foresee annual inflation at 2.6 per cent in 2021, 3.2 per cent in 2022, 1.8 per cent in 2023, and 1.8 per cent in 2024 – significantly higher than in the previous projections in September. Inflation excluding food and energy is projected to average 1.4 per cent in 2021, 1.9 per cent in 2022, 1.7 per cent in 2023, and 1.8 per cent in 2024, also higher than in the September projections.","We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than expected. By contrast, the recent worsening of the pandemic, including the spread of new variants, could be a more persistent drag on growth. The future path of energy prices and the pace at which supply bottlenecks are resolved are risks to the recovery and to the outlook for inflation. If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.","Market interest rates have remained broadly stable since the October Governing Council meeting. Bank lending rates for firms and households remain at historically low levels. Overall, financing conditions for the economy remain favourable. Lending to firms is partly driven by short-term funding needs stemming from supply bottlenecks that increase their expenses for inventory and working capital. At the same time, corporate demand for loans remains moderate because of retained earnings and generous cash holdings, as well as high debt. Lending to households remains robust – driven by demand for mortgages.","Euro area banks have further strengthened their balance sheets thanks to higher capital ratios and fewer non-performing loans. Banks are now as profitable as they were before the pandemic. Bank funding conditions remain favourable overall.","In line with our new monetary policy strategy, twice a year the Governing Council assesses in-depth the interrelation between monetary policy and financial stability. An accommodative monetary policy underpins growth, which supports the balance sheets of companies and financial institutions, as well as preventing risks of market fragmentation. At the same time, the impact of accommodative monetary policy on property markets and financial markets warrants close monitoring as a number of medium-term vulnerabilities have intensified. Still, macroprudential policy remains the first line of defence in preserving financial stability and addressing medium-term vulnerabilities.","Summing up, the euro area economy continues to recover, despite a slowdown in the near term. The sharp increase in energy prices and demand outpacing constrained supply in some sectors are pushing up inflation. Inflation will remain above our target for most of 2022, but is likely to ease in the course of next year. At the same time, given the progress on economic recovery and towards our medium-term inflation target, we can discontinue net purchases under the PEPP in March. But monetary accommodation is still needed – including net purchases under the APP and our forward guidance on interest rates – for inflation to stabilise at our two per cent inflation target over the medium term.","We are now ready to take your questions.","Frankfurt am Main, 3 February 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","The euro area economy is continuing to recover and the labour market is improving further, helped by ample policy support. But growth is likely to remain subdued in the first quarter, as the current pandemic wave is still weighing on economic activity. Shortages of materials, equipment and labour continue to hold back output in some industries. High energy costs are hurting incomes and are likely to dampen spending. However, the economy is affected less and less by each wave of the pandemic and the factors restraining production and consumption should gradually ease, allowing the economy to pick up again strongly in the course of the year.","Inflation has risen sharply in recent months and it has further surprised to the upside in January. This is primarily driven by higher energy costs that are pushing up prices across many sectors, as well as higher food prices. Inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year.","The Governing Council therefore confirmed the decisions taken at its monetary policy meeting last December, as detailed in the press release published at 13:45 today. Accordingly, we will continue reducing the pace of our asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme (PEPP) at the end of March. In view of the current uncertainty, we need more than ever to maintain flexibility and optionality in the conduct of monetary policy. The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its two per cent target over the medium term.","I will now outline in more detail how we see the economy and inflation developing, and will then talk about our assessment of financial and monetary conditions.","Economic growth weakened to 0.3 per cent in the final quarter of last year. Nevertheless, output reached its pre-pandemic level at the end of 2021. Economic activity and demand will likely remain muted in the early part of this year for several reasons. First, containment measures are affecting consumer services, especially travel, tourism, hospitality and entertainment. Although infection rates are still very high, the impact of the pandemic on economic life is now proving less damaging. Second, high energy costs are reducing the purchasing power of households and the earnings of businesses, which constrains consumption and investment. And third, shortages of equipment, materials and labour in some sectors continue to hamper the production of manufactured goods, delay construction and hold back the recovery in parts of the services sector. There are signs that these bottlenecks may be starting to ease, but they will still persist for some time.","Looking beyond the near term, growth should rebound strongly over the course of 2022, driven by robust domestic demand. As the labour market is improving further, with more people having jobs and fewer in job retention schemes, households should enjoy higher income and spend more. The global recovery and the ongoing fiscal and monetary policy support also contribute to this positive outlook. Targeted and productivity-enhancing fiscal measures and structural reforms, attuned to the conditions in different euro area countries, remain key to complement our monetary policy effectively.","Inflation increased to 5.1 per cent in January, from 5.0 per cent in December 2021. It is likely to remain high in the near term. Energy prices continue to be the main reason for the elevated rate of inflation. Their direct impact accounted for over half of headline inflation in January and energy costs are also pushing up prices across many sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. In addition, price rises have become more widespread, with the prices of a large number of goods and services having increased markedly. Most measures of underlying inflation have risen over recent months, although the role of temporary pandemic factors means that the persistence of these increases remains uncertain. Market-based indicators suggest a moderation in energy price dynamics in the course of 2022 and price pressures stemming from global supply bottlenecks should also subside.","Labour market conditions are improving further, although wage growth remains muted overall. Over time, the return of the economy to full capacity should support faster growth in wages. Market-based measures of longer-term inflation expectations have remained broadly stable at rates just below two per cent since our last monetary policy meeting. The latest survey-based measures stand at around two per cent. These factors will also contribute further to underlying inflation and will help headline inflation to settle durably at our two per cent target.","We continue to see the risks to the economic outlook as broadly balanced over the medium term. The economy could perform more strongly than expected if households become more confident and save less than expected. By contrast, although uncertainties related to the pandemic have abated somewhat, geopolitical tensions have increased. Furthermore, persistently high costs of energy could exert a stronger than expected drag on consumption and investment. The pace at which supply bottlenecks are resolved is a further risk to the outlook for growth and inflation. Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term. If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.","Market interest rates have increased since our December meeting. However, bank funding costs have so far remained contained. Bank lending rates for firms and households continue to stand at historically low levels and financing conditions for the economy remain favourable. Lending to firms has picked up, supported by both short and longer-term loans. Robust demand for mortgages is sustaining lending to households. Banks are now as profitable as they were before the pandemic and their balance sheets remain solid.","According to our latest Bank Lending Survey, loan demand by firms increased strongly in the last quarter of 2021. This was driven by both higher working capital needs, stemming from supply bottlenecks, and increased financing of longer-term investment. In addition, banks continue to hold an overall benign view of credit risks, mainly because of their positive assessment of the economic outlook.","Summing up, the euro area economy continues to recover, but growth is expected to remain subdued in the first quarter. While the outlook for inflation is uncertain, inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year. We will remain attentive to the incoming data and carefully assess the implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at its two per cent target over the medium term.","We are now ready to take your questions.","Frankfurt am Main, 10 March 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","The Russian invasion of Ukraine is a watershed for Europe. The Governing Council expresses its full support to the people of Ukraine. We will ensure smooth liquidity conditions and implement the sanctions decided by the European Union and European governments. We will take whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to safeguard financial stability.","The Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions and on possible further measures. In recognition of the highly uncertain environment, the Governing Council considered a range of scenarios in today’s meeting.","The impact of the Russia-Ukraine war has to be assessed in the context of solid underlying conditions for the euro area economy, helped by ample policy support. The recovery of the economy is boosted by the fading impact of the Omicron coronavirus variant. Supply bottlenecks have been showing some signs of easing and the labour market has been improving further. In the baseline of the new staff projections, which incorporate a first assessment of the implications of the war, GDP growth has been revised downwards for the near term, owing to the war in Ukraine. The projections foresee the economy growing at 3.7 per cent in 2022, 2.8 per cent in 2023 and 1.6 per cent in 2024.","Inflation has continued to surprise on the upside because of unexpectedly high energy costs. Price rises have also become more broadly based. The baseline for inflation in the new staff projections has been revised upwards significantly, with annual inflation at 5.1 per cent in 2022, 2.1 per cent in 2023 and 1.9 per cent in 2024. Inflation excluding food and energy is projected to average 2.6 per cent in 2022, 1.8 per cent in 2023 and 1.9 per cent in 2024, also higher than in the December projections. Longer-term inflation expectations across a range of measures have re-anchored at our inflation target. The Governing Council sees it as increasingly likely that inflation will stabilise at its two per cent target over the medium term.","In alternative scenarios for the economic and financial impact of the war, which will be published together with the staff projections on our website, economic activity could be dampened significantly by a steeper rise in energy and commodity prices and a more severe drag on trade and sentiment. Inflation could be considerably higher in the near term. However, in all scenarios, inflation is still expected to decrease progressively and settle at levels around our two per cent inflation target in 2024.","Based on our updated assessment and taking into account the uncertain environment, the Governing Council today revised the purchase schedule for its asset purchase programme (APP) for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. The calibration of net purchases for the third quarter will be data-dependent and reflect our evolving assessment of the outlook. If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the Governing Council will conclude net purchases under the APP in the third quarter. If the medium-term inflation outlook changes and if financing conditions become inconsistent with further progress towards our two per cent target, we stand ready to revise our schedule for net asset purchases in terms of size and/or duration.","Any adjustments to the key ECB interest rates will take place some time after the end of our net purchases under the APP and will be gradual. The path for the key ECB interest rates will continue to be determined by the Governing Council’s forward guidance and by its strategic commitment to stabilise inflation at two per cent over the medium term. Accordingly, the Governing Council expects the key ECB interest rates to remain at their present levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.","We also confirmed our other policy measures, as detailed in the press release published at 13:45 today.","I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions.","The economy grew by 5.3 per cent in 2021, with GDP returning to its pre-pandemic level at the end of the year. However, growth slowed to 0.3 per cent in the final quarter of 2021 and is expected to remain weak during the first quarter of 2022.","The prospects for the economy will depend on the course of the Russia-Ukraine war and on the impact of economic and financial sanctions and other measures. At the same time, other headwinds to growth are now waning. In the baseline of the staff projections, the euro area economy should still grow robustly in 2022 but the pace will be slower than was expected before the outbreak of the war. Measures to contain the spread of the Omicron coronavirus variant have had a milder impact than during previous waves and are now being lifted. The supply disruptions caused by the pandemic also show some signs of easing. The impact of the massive energy price shock on people and businesses may be partly cushioned by drawing on savings accumulated during the pandemic and by compensatory fiscal measures.","Over the medium term, according to the baseline of the staff projections, growth will be driven by robust domestic demand, supported by a stronger labour market. With more people in jobs, households should earn higher incomes and spend more. The global recovery and the ongoing fiscal and monetary policy support are also contributing to this growth outlook. Fiscal and monetary support remains critical, especially in this difficult geopolitical situation.","Inflation increased to 5.8 per cent in February, from 5.1 per cent in January. We expect it to rise further in the near term. Energy prices, which surged by 31.7 per cent in February, continue to be the main reason for this high rate of inflation and are also pushing up prices across many other sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. Energy costs have risen further in recent weeks and there will be further pressure on some food and commodity prices owing to the war in Ukraine.","Price rises have become more widespread. Most measures of underlying inflation have risen over recent months to levels above two per cent. However, it is uncertain how persistent the rise in these indicators will be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices. Market-based indicators suggest that energy prices will stay high for longer than previously expected but will moderate over the course of the projection horizon. Price pressures stemming from global supply bottlenecks should also subside.","Labour market conditions have continued to improve, with unemployment falling to 6.8 per cent in January. Even though labour shortages are affecting more and more sectors, wage growth remains muted overall. Over time, the return of the economy to full capacity should support somewhat faster growth in wages. Various measures of longer-term inflation expectations derived from financial markets and from surveys stand at around two per cent. These factors will also contribute further to underlying inflation and will help headline inflation to settle durably at our two per cent target.","The risks to the economic outlook have increased substantially with the Russian invasion of Ukraine and are tilted to the downside. While risks relating to the pandemic have declined, the war in Ukraine may have a stronger effect on economic sentiment and could worsen supply-side constraints again. Persistently high energy costs, together with a loss of confidence, could drag down demand more than expected and constrain consumption and investment.","The same factors are risks to the outlook for inflation, which are on the upside in the near term. The war in Ukraine is a substantial upside risk, especially to energy prices. If price pressures feed through into higher than anticipated wage rises or if there are adverse persistent supply-side implications, inflation could also turn out to be higher over the medium term. However, if demand were to weaken over the medium term, this could also lower pressures on prices.","The Russian invasion of Ukraine has caused substantial volatility in financial markets. Following the outbreak of the war, risk-free market interest rates have partially reversed the increase observed since our February meeting and equity prices have fallen.","The financial sanctions against Russia, including the exclusion of some Russian banks from SWIFT, have so far not caused severe strains in money markets or liquidity shortages in the euro area banking system. Bank balance sheets remain healthy overall, owing to robust capital positions and fewer non-performing loans. Banks are now as profitable as they were before the pandemic.","Bank lending rates for firms have increased somewhat, while lending rates for household mortgages remain steady at historically low levels. Lending flows to firms have declined after increasing strongly in the last quarter of 2021. Lending to households is holding up, especially for house purchases.","Summing up, the Russian invasion of Ukraine will negatively affect the euro area economy and has significantly increased uncertainty. If the baseline of the staff projections materialises, the economy should continue to rebound thanks to the declining impact of the pandemic and the prospect of solid domestic demand and strong labour markets. Fiscal measures, including at the European Union level, would also help to shield the economy. Based on our updated assessment of the inflation outlook and taking into account the uncertain environment, we revised our schedule for net asset purchases over the coming months and confirmed all our other policy measures. We are very attentive to the prevailing uncertainties. The calibration of our policies will remain data-dependent and reflect our evolving assessment of the outlook. We stand ready to adjust all of our instruments to ensure that inflation stabilises at our two per cent target over the medium term.","We are now ready to take your questions.","Frankfurt am Main, 14 April 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","Russia’s aggression towards Ukraine is causing enormous suffering. It is also affecting the economy, in Europe and beyond. The conflict and the associated uncertainty are weighing heavily on the confidence of businesses and consumers. Trade disruptions are leading to new shortages of materials and inputs. Surging energy and commodity prices are reducing demand and holding back production. How the economy develops will crucially depend on how the conflict evolves, on the impact of current sanctions and on possible further measures. At the same time, economic activity is still being supported by the reopening of the economy after the crisis phase of the pandemic. Inflation has increased significantly and will remain high over the coming months, mainly because of the sharp rise in energy costs. Inflation pressures have intensified across many sectors.","At today’s meeting we judged that the incoming data since our last meeting reinforce our expectation that net asset purchases under our asset purchase programme (APP) should be concluded in the third quarter. Looking ahead, our monetary policy will depend on the incoming data and our evolving assessment of the outlook. In the current conditions of high uncertainty, we will maintain optionality, gradualism and flexibility in the conduct of monetary policy. The Governing Council will take whatever action is needed to fulfil the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability.","I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions.","The euro area economy grew by 0.3 per cent in the final quarter of 2021. It is estimated that growth remained weak during the first quarter of 2022, largely owing to pandemic-related restrictions.","Several factors point to slow growth also in the period ahead. The war is already weighing on the confidence of businesses and consumers, including through the uncertainty it brings. With energy and commodity prices rising sharply, households are facing a higher cost of living and firms are confronted with higher production costs. The war has created new bottlenecks, while a new set of pandemic measures in Asia is contributing to supply chain difficulties. Some sectors face growing difficulties in sourcing their inputs, which is disrupting production. However, there are also offsetting factors underpinning the ongoing recovery, such as compensatory fiscal measures and the possibility for households to draw on savings they accumulated during the pandemic. Moreover, the reopening of those sectors most affected by the pandemic and a strong labour market with more people in jobs will continue to support incomes and spending.","Fiscal and monetary policy support remains critical, especially in this difficult geopolitical situation. In addition, the successful implementation of the investment and reform plans under the Next Generation EU programme will accelerate the energy and green transitions. This should help enhance long-term growth and resilience in the euro area.","Inflation increased to 7.5 per cent in March, from 5.9 per cent in February. Energy prices were driven higher after the outbreak of the war and now stand 45 per cent above their level one year ago. They continue to be the main reason for the high rate of inflation. Market-based indicators suggest that energy prices will stay high in the near term but will then moderate to some extent. Food prices have also increased sharply. This is due to elevated transportation and production costs, notably the higher price of fertilisers, which are in part related to the war in Ukraine.","Price rises have become more widespread. Energy costs are pushing up prices across many sectors. Supply bottlenecks and the normalisation of demand as the economy reopens also continue to put upward pressure on prices. Measures of underlying inflation have risen to levels above two per cent in recent months. It is uncertain how persistent the rise in these indicators will be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices.","The labour market continues to improve, with unemployment having fallen to a historical low of 6.8 per cent in February. Job postings across many sectors still signal robust demand for labour, yet wage growth remains muted overall. Over time the return of the economy to full capacity should support faster growth in wages. While various measures of longer-term inflation expectations derived from financial markets and from expert surveys largely stand at around two per cent, initial signs of above-target revisions in those measures warrant close monitoring.","The downside risks to the growth outlook have increased substantially as a result of the war in Ukraine. While risks relating to the pandemic have declined, the war may have an even stronger effect on economic sentiment and could further worsen supply-side constraints. Persistently high energy costs, together with a loss of confidence, could drag down demand and restrain consumption and investment more than expected.","The upside risks surrounding the inflation outlook have also intensified, especially in the near term. The risks to the medium-term inflation outlook include above-target moves in inflation expectations, higher than anticipated wage rises and a durable worsening of supply-side conditions. However, if demand were to weaken over the medium term, it would lower pressure on prices.","Financial markets have been highly volatile since the war began and financial sanctions were imposed. Market interest rates have increased in response to the changing outlook for monetary policy, the macroeconomic environment and inflation dynamics. Bank funding costs have continued to increase. At the same time, so far there have been no severe strains in money markets, nor liquidity shortages in the euro area banking system.","Although remaining at low levels, bank lending rates for firms and households have started to reflect the increase in market interest rates. Lending to households is holding up, especially for house purchases. Lending flows to firms have stabilised.","Our most recent bank lending survey reports that credit standards for loans to firms and for housing loans tightened overall in the first quarter of the year, as lenders are becoming more concerned about the risks facing their customers in an uncertain environment. Credit standards are expected to tighten further in the coming months, as banks factor in the adverse economic impact of Russia’s aggression towards Ukraine and higher energy prices.","Summing up, the war in Ukraine is severely affecting the euro area economy and has significantly increased uncertainty. The impact of the war on the economy will depend on how the conflict evolves, on the effect of current sanctions and on possible further measures. Inflation has increased significantly and will remain high over the coming months, mainly because of the sharp rise in energy costs. We are very attentive to the current uncertainties and are closely monitoring the incoming data in relation to their implications for the medium-term inflation outlook. The calibration of our policies will remain data-dependent and reflect our evolving assessment of the outlook. We stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at our two per cent target over the medium term.","We are now ready to take your questions.","Amsterdam, 9 June 2022","Good afternoon, the Vice-President and I welcome you to our press conference. I would like to thank President Knot for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","High inflation is a major challenge for all of us. The Governing Council will make sure that inflation returns to our two per cent target over the medium term.","In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly. Eurosystem staff have revised their baseline inflation projections up significantly. These projections indicate that inflation will remain undesirably elevated for some time. However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalisation of monetary policy are expected to lead to a decline in inflation. The new staff projections foresee annual inflation at 6.8 per cent in 2022, before it is projected to decline to 3.5 per cent in 2023 and 2.1 per cent in 2024 – higher than in the March projections. This means that headline inflation at the end of the projection horizon is projected to be slightly above our target. Inflation excluding energy and food is projected to average 3.3 per cent in 2022, 2.8 per cent in 2023 and 2.3 per cent in 2024 – also above the March projections.","Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond. It is disrupting trade, is leading to shortages of materials and is contributing to high energy and commodity prices. These factors will continue to weigh on confidence and dampen growth, especially in the near term. However, the conditions are in place for the economy to continue to grow on account of the ongoing reopening of the economy, a strong labour market, fiscal support and savings built up during the pandemic. Once current headwinds abate, economic activity is expected to pick up again. This outlook is broadly reflected in the Eurosystem staff projections, which foresee annual real GDP growth at 2.8 per cent in 2022, 2.1 per cent in 2023 and 2.1 per cent in 2024. Compared with the March projections, the outlook has been revised down significantly for 2022 and 2023, while for 2024 it has been revised up.","On the basis of our updated assessment, we decided to take further steps in normalising our monetary policy. Throughout this process, the Governing Council will maintain optionality, data-dependence, gradualism and flexibility in the conduct of monetary policy.","First, we decided to end net asset purchases under our asset purchase programme (APP) as of 1 July 2022. The Governing Council intends 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 it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.","Second, we undertook a careful review of the conditions which, according to our forward guidance, should be satisfied before we start raising the key ECB interest rates. As a result of this assessment, the Governing Council concluded that those conditions have been satisfied. Accordingly, and in line with our policy sequencing, we intend to raise the key ECB interest rates by 25 basis points at our July monetary policy meeting.","Looking further ahead, we expect to raise the key ECB interest rates again in September. The calibration of this rate increase will depend on the updated medium-term inflation outlook. If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at our September meeting.","Third, beyond September, based on our current assessment, we anticipate that a gradual but sustained path of further increases in interest rates will be appropriate. In line with our commitment to our two per cent medium-term target, the pace at which we adjust our monetary policy will depend on the incoming data and how we assess inflation to develop in the medium term.","Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability.","The decisions taken today are set out in full in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions.","In the near term, we expect activity to be dampened by high energy costs, the deterioration in the terms of trade, greater uncertainty and the adverse impact of high inflation on disposable income. The war in Ukraine and renewed pandemic restrictions in China have made supply bottlenecks worse again. As a result, firms face higher costs and disruptions in their supply chains, and their outlook for future output has deteriorated.","However, there are also factors supporting economic activity and these are expected to strengthen over the months to come. The reopening of those sectors most affected by the pandemic and a strong labour market, with more people in jobs, will continue to support incomes and consumption. In addition, savings accumulated during the pandemic are a buffer.","Fiscal policy is helping to cushion the impact of the war. Targeted and temporary budgetary measures protect those people bearing the brunt of higher energy prices while limiting the risk of adding to inflationary pressures. The swift implementation of the investment and structural reform plans under the Next Generation EU programme, the “Fit for 55” package and the REPowerEU plan would also help the euro area economy to grow faster in a sustainable manner and become more resilient to global shocks.","Inflation rose further to 8.1 per cent in May. Although governments have intervened and have helped slow energy inflation, energy prices stand 39.2 per cent above their levels one year ago. Market-based indicators suggest that global energy prices will stay high in the near term but will then moderate to some extent. Food prices rose 7.5 per cent in May, in part reflecting the importance of Ukraine and Russia among the main global producers of agricultural goods.","Prices have also gone up more strongly because of renewed supply bottlenecks and because of recovering domestic demand, especially in the services sector, as our economy reopens. Price rises are becoming more widespread across sectors. Accordingly, measures of underlying inflation have been rising further.","The labour market continues to improve, with unemployment remaining at its historical low of 6.8 per cent in April. Job vacancies across many sectors show that there is robust demand for labour. Wage growth, including in forward-looking indicators, has started to pick up. Over time, the strengthening of the economy and some catch-up effects should support faster growth in wages. While most measures of longer-term inflation expectations derived from financial markets and from expert surveys stand at around two per cent, initial signs of above-target revisions in those measures warrant close monitoring.","Risks relating to the pandemic have declined but the war continues to be a significant downside risk to growth. In particular, a major risk would be a further disruption in the energy supply to the euro area, as reflected in the downside scenario included in the staff projections. Furthermore, if the war were to escalate, economic sentiment could worsen, supply-side constraints could increase, and energy and food costs could remain persistently higher than expected.","The risks surrounding inflation are primarily on the upside. The risks to the medium-term inflation outlook include a durable worsening of the production capacity of our economy, persistently high energy and food prices, inflation expectations rising above our target and higher than anticipated wage rises. However, if demand were to weaken over the medium term, it would lower pressures on prices.","Market interest rates have increased in response to the changing outlook for inflation and monetary policy. With benchmark interest rates rising, bank funding costs have increased, and this has fed into higher bank lending rates in particular for households. Nevertheless, lending to firms picked up in March. This was because of the continued need to finance investment and working capital, against the backdrop of increasing production costs, persisting supply bottlenecks and lower reliance on market funding. Lending to households also increased, reflecting continued robust demand for mortgages.","In line with our monetary policy strategy, the Governing Council has undertaken its biannual in-depth assessment of the interrelation between monetary policy and financial stability. The environment for financial stability has worsened since our last review in December 2021, especially over the short term. In particular, lower growth and increasing cost pressures, as well as rising risk-free rates and sovereign bond yields, could lead to a further deterioration in the financing conditions faced by borrowers. At the same time, tighter financing conditions could reduce some existing financial stability vulnerabilities over the medium term. Banks, which started the year with solid capital positions and improving asset quality, are now facing greater credit risk. We will watch these factors closely. In any case, macroprudential policy remains the first line of defence in preserving financial stability and addressing medium-term vulnerabilities.","Summing up, Russia’s unjustified aggression towards Ukraine is severely affecting the euro area economy and the outlook is still surrounded by high uncertainty. But the conditions are in place for the economy to continue to grow and to recover further over the medium term.","Inflation is undesirably high and is expected to remain above our target for some time. We will make sure that inflation returns to our two per cent target over the medium term. Accordingly, we decided to take further steps in normalising our monetary policy. The calibration of our policies will remain data-dependent and reflect our evolving assessment of the outlook. We stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at our two per cent target over the medium term.","We are now ready to take your questions.","Frankfurt am Main, 21 July 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","Today, in line with our strong commitment to our price stability mandate, the Governing Council took further key steps to make sure inflation returns to our two per cent target over the medium term. We decided to raise the three key ECB interest rates by 50 basis points and approved the Transmission Protection Instrument (TPI).","The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting. This decision is based on our updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy. It will support the return of inflation to our medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver our inflation target in the medium term.","At our upcoming meetings, further normalisation of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows us to make a transition to a meeting-by-meeting approach to our interest rate decisions. Our future policy rate path will continue to be data-dependent and will help us deliver on our two per cent inflation target over the medium term. In the context of our policy normalisation, we will evaluate options for remunerating excess liquidity holdings.","We assessed that the establishment of the TPI is necessary to support the effective transmission of monetary policy. In particular, as we continue normalising monetary policy, the TPI will ensure that our monetary policy stance is transmitted smoothly across all euro area countries. The singleness of our monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate.","The TPI will be an addition to our toolkit and can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area. The scale of TPI purchases depends on the severity of the risks facing policy transmission. Purchases are not restricted ex ante. By safeguarding the transmission mechanism, the TPI will allow the Governing Council to more effectively deliver on its price stability mandate.","In any event, the flexibility in reinvestments of redemptions coming due in the pandemic emergency purchase programme (PEPP) portfolio remains the first line of defence to counter risks to the transmission mechanism related to the pandemic.","The decisions taken today are set out in a press release available on our website. The details of the TPI are described in a separate press release to be published at 15:45 CET.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","Economic activity is slowing. Russia’s unjustified aggression towards Ukraine is an ongoing drag on growth. The impact of high inflation on purchasing power, continuous supply constraints and higher uncertainty are having a dampening effect on the economy. Firms continue to face higher costs and disruptions in their supply chains, although there are tentative signs that some of the supply bottlenecks are easing. Taken together, these factors are significantly clouding the outlook for the second half of 2022 and beyond.","At the same time, economic activity continues to benefit from the reopening of the economy, a strong labour market and fiscal policy support. In particular, the full reopening of the economy is supporting spending in the services sector. As people start to travel again, tourism is expected to help the economy in the third quarter of this year. Consumption is being supported by the savings that households built up during the pandemic and by a strong labour market.","Fiscal policy is helping to cushion the impact of the war in Ukraine for those bearing the brunt of higher energy prices. Temporary and targeted measures should be tailored so as to limit the risk of fuelling inflationary pressures. Fiscal policies in all countries should aim at preserving debt sustainability, as well as raising the growth potential in a sustainable manner to enhance the recovery.","Inflation increased further to 8.6 per cent in June. Surging energy prices were again the most important component of overall inflation. Market-based indicators suggest that global energy prices will stay high in the near term. Food inflation also rose further, standing at 8.9 per cent in June, in part reflecting the importance of Ukraine and Russia as producers of agricultural goods.","Persistent supply bottlenecks for industrial goods and recovering demand, especially in the services sector, are also contributing to the current high rates of inflation. Price pressures are spreading across more and more sectors, in part owing to the indirect impact of high energy costs across the whole economy. Accordingly, most measures of underlying inflation have risen further.","We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices and pipeline pressures in the pricing chain. Higher inflationary pressures are also stemming from the depreciation of the euro exchange rate. But looking further ahead, in the absence of new disruptions, energy costs should stabilise and supply bottlenecks should ease, which, together with the ongoing policy normalisation, should support the return of inflation to our target.","The labour market remains strong. Unemployment fell to a historical low of 6.6 per cent in May. Job vacancies across many sectors show that there is robust demand for labour. Wage growth, also according to forward-looking indicators, has continued to increase gradually over the last few months, but still remains contained overall. Over time, the strengthening of the economy and some catch-up effects should support faster growth in wages. Most measures of longer-term inflation expectations currently stand at around two per cent, although recent above-target revisions to some indicators warrant continued monitoring.","A prolongation of the war in Ukraine remains a source of significant downside risk to growth, especially if energy supplies from Russia were to be disrupted to such an extent that it led to rationing for firms and households. The war may also further dampen confidence and aggravate supply-side constraints, while energy and food costs could remain persistently higher than expected. A faster deceleration in global growth would also pose a risk to the euro area outlook.","The risks to the inflation outlook continue to be on the upside and have intensified, particularly in the short term. The risks to the medium-term inflation outlook include a durable worsening of the production capacity of our economy, persistently high energy and food prices, inflation expectations rising above our target and higher than anticipated wage rises. However, if demand were to weaken over the medium term, it would lower pressures on prices.","Market interest rates have been volatile as a result of the pronounced economic and geopolitical uncertainty. Bank funding costs have risen in recent months, which has increasingly fed into higher bank lending rates, in particular for households. While the volume of bank lending to households remains strong, it is expected to decline in view of lower demand. Lending to firms has also been robust as high production costs, inventory building and lower reliance on market funding have created a continued need for credit from banks. At the same time, demand for loans to finance investment has declined. Money growth has continued to moderate owing to lower liquid savings and lower Eurosystem asset purchases.","Our most recent bank lending survey reports that credit standards tightened for all loan categories in the second quarter of the year, as banks are becoming more concerned about the risks faced by their customers in the current uncertain environment. Banks expect to continue tightening their credit standards in the third quarter.","Summing up, inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond. At the same time, this slowdown is being cushioned by a number of supportive factors.","The Governing Council has today decided to raise the key ECB interest rates and approved the TPI. At our upcoming meetings, further normalisation of interest rates will be appropriate. Our future policy rate path will continue to be data-dependent and will help us deliver on our two per cent inflation target over the medium term.","We stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises at our two per cent target over the medium term. Our new TPI will safeguard the smooth transmission of our monetary policy stance throughout the euro area as we keep adjusting the stance to address high inflation.","We are now ready to take your questions.","Frankfurt am Main, 8 September 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to our two per cent medium-term target. Based on our current assessment, over the next several meetings we expect to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. We will regularly re-evaluate our policy path in light of incoming information and the evolving inflation outlook. Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.","We took today’s decision, and expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period. According to Eurostat’s flash estimate, inflation reached 9.1 per cent in August. Soaring energy and food prices, demand pressures in some sectors owing to the reopening of the economy, and supply bottlenecks are still driving up inflation. Price pressures have continued to strengthen and broaden across the economy and inflation may rise further in the near term. As the current drivers of inflation fade over time and the normalisation of our monetary policy works its way through to the economy and price-setting, inflation will come down. Looking ahead, ECB staff have significantly revised up their inflation projections and inflation is now expected to average 8.1 per cent in 2022, 5.5 per cent in 2023 and 2.3 per cent in 2024.","After a rebound in the first half of 2022, recent data point to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in the year and in the first quarter of 2023. Very high energy prices are reducing the purchasing power of people’s incomes and, although supply bottlenecks are easing, they are still constraining economic activity. In addition, the adverse geopolitical situation, especially Russia’s unjustified aggression towards Ukraine, is weighing on the confidence of businesses and consumers. This outlook is reflected in the latest staff projections for economic growth, which have been revised down markedly for the remainder of the current year and throughout 2023. Staff now expect the economy to grow by 3.1 per cent in 2022, 0.9 per cent in 2023 and 1.9 per cent in 2024.","The lasting vulnerabilities caused by the pandemic still pose a risk to the smooth transmission of our monetary policy. The Governing Council will therefore continue applying flexibility in reinvesting redemptions coming due in the pandemic emergency purchase programme portfolio, with a view to countering risks to the transmission mechanism related to the pandemic.","The decisions taken today are set out in a press release available on our website. A separate technical press release on the remuneration of government deposits will be published at 15:45 CET.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy grew by 0.8 per cent in the second quarter of 2022, mainly owing to strong consumer spending on contact-intensive services, as a result of the lifting of pandemic-related restrictions. Over the summer, as people travelled more, countries with large tourism sectors benefited especially. At the same time, businesses suffered from high energy costs and continued supply bottlenecks, although the latter have been gradually easing.","While buoyant tourism has been supporting economic growth during the third quarter, we expect the economy to slow down substantially over the remainder of this year. There are four main reasons behind this. First, high inflation is dampening spending and production throughout the economy, and these headwinds are reinforced by gas supply disruptions. Second, the strong rebound in demand for services that came with the reopening of the economy will lose steam in the coming months. Third, the weakening in global demand, also in the context of tighter monetary policy in many major economies, and the worsening terms of trade will mean less support for the euro area economy. Fourth, uncertainty remains high and confidence is falling sharply.","At the same time, the labour market has remained robust, supporting economic activity. Employment increased by more than 600,000 people in the second quarter of 2022 and the unemployment rate stood at a historical low of 6.6 per cent in July. Total hours worked increased further, by 0.6 per cent, in the second quarter of 2022 and have surpassed their pre-pandemic levels. Looking ahead, the slowing economy is likely to lead to some increase in the unemployment rate.","Fiscal support measures to cushion the impact of higher energy prices should be temporary and targeted at the most vulnerable households and firms to limit the risk of fuelling inflationary pressures, to enhance the efficiency of public spending and to preserve debt sustainability. Structural policies should aim at raising the euro area’s growth potential and supporting its resilience.","Inflation rose further to 9.1 per cent in August. Energy price inflation remained extremely elevated, at 38.3 per cent, and it was again the dominant component of overall inflation. Market-based indicators suggest that, in the near term, oil prices will moderate, while wholesale gas prices will stay extraordinarily high. Food price inflation also rose in August, to 10.6 per cent, partly reflecting higher input costs related to energy, disruptions of trade in food commodities and adverse weather conditions.","While supply bottlenecks have been easing, these continue to gradually feed through to consumer prices and are putting upward pressure on inflation, as is recovering demand in the services sector. The depreciation of the euro has also added to the build-up of inflationary pressures.","Price pressures are spreading across more and more sectors, in part owing to the impact of high energy costs across the whole economy. Accordingly, measures of underlying inflation remain at elevated levels and the latest staff projections see inflation excluding food and energy reaching 3.9 per cent in 2022, 3.4 per cent in 2023 and 2.3 per cent in 2024.","Resilient labour markets and some catch-up to compensate for higher inflation are likely to support growth in wages. At the same time, incoming data and recent wage agreements indicate that wage dynamics remain contained overall. Most measures of longer-term inflation expectations currently stand at around two per cent, although recent above-target revisions to some indicators warrant continued monitoring.","In the context of the slowing global economy, risks to growth are primarily on the downside, in particular in the near term. As reflected in the downside scenario in the staff projections, a long-lasting war in Ukraine remains a significant risk to growth, especially if firms and households faced rationing of energy supplies. In such a situation, confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A further deterioration in the global economic outlook could be an additional drag on euro area external demand.","The risks to the inflation outlook are primarily on the upside. In the same way as for growth, the major risk in the short term is a further disruption of energy supplies. Over the medium term, inflation may turn out to be higher than expected because of a persistent worsening of the production capacity of the euro area economy, further increases in energy and food prices, a rise in inflation expectations above our target, or higher than anticipated wage rises. However, if energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices.","Market interest rates have increased in anticipation of further monetary policy normalisation in response to the inflation outlook. Credit to firms has become more expensive over recent months, and bank lending rates for households now stand at their highest levels in more than five years. In terms of volumes, bank lending to firms has so far remained strong, in part reflecting the need to finance high production costs and inventory building. Mortgage lending to households is moderating because of tightening credit standards, rising borrowing costs and weak consumer confidence.","Summing up, we raised the three key ECB interest rates by 75 basis points today, and expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period. This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two per cent medium-term target.","Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term inflation target.","We are now ready to take your questions.","Frankfurt am Main, 27 October 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, we have made substantial progress in withdrawing monetary policy accommodation. We took today’s decision, and expect to raise interest rates further, to ensure the timely return of inflation to our two per cent medium-term inflation target. We will base the future policy rate path on the evolving outlook for inflation and the economy, following our meeting-by-meeting approach.","Inflation remains far too high and will stay above our target for an extended period. In September, euro area inflation reached 9.9 per cent. In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation. Our monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations.","The Governing Council also decided to change the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III). During the acute phase of the pandemic, this instrument played a key role in countering downside risks to price stability. Today, in view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated to ensure that it is consistent with the broader monetary policy normalisation process and to reinforce the transmission of our policy rate increases to bank lending conditions. We therefore decided to adjust the interest rates applicable to TLTRO III from 23 November 2022 and to offer banks additional voluntary early repayment dates.","Finally, in order to align the remuneration of minimum reserves held by credit institutions with the Eurosystem more closely with money market conditions, we decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate.","The decisions taken today are set out in a press release available on our website. The details of the changes to the TLTRO III terms and conditions are described in a separate press release to be published at 15:45 CET. Another technical press release, detailing the change to the remuneration of minimum reserves, will also be published at 15:45 CET.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","Economic activity in the euro area is likely to have slowed significantly in the third quarter of the year, and we expect a further weakening in the remainder of this year and the beginning of next year. By reducing people’s real incomes and pushing up costs for firms, high inflation continues to dampen spending and production. Severe disruptions in the supply of gas have worsened the situation further, and both consumer and business confidence have fallen rapidly, which is also weighing on the economy. Demand for services is slowing, after a strong performance in previous quarters when those sectors most affected by the pandemic-related restrictions reopened, and survey-based indicators for new orders in the manufacturing sector are falling. Moreover, global economic activity is growing more slowly, in a context of persistent geopolitical uncertainty, especially owing to Russia’s unjustified war against Ukraine, and tighter financing conditions. Worsening terms of trade, as the prices paid for imports rise faster than those received for exports, are weighing on incomes in the euro area.","The labour market continued to perform well in the third quarter, and the unemployment rate remained at the historically low level of 6.6 per cent in August. While short-term indicators suggest that jobs were still being created in the third quarter, the weakening of the economy could lead to somewhat higher unemployment in the future.","To limit the risk of fuelling inflation, fiscal support measures to shield the economy from the impact of high energy prices should be temporary and targeted at the most vulnerable. Policymakers should provide incentives to lower energy consumption and bolster energy supply. At the same time, governments should pursue fiscal policies that show they are committed to gradually bringing down high public debt ratios. Structural policies should be designed to increase the euro area’s growth potential and supply capacity and to boost its resilience, thereby contributing to a reduction in medium-term price pressures. The swift implementation of the investment and structural reform plans under the Next Generation EU programme will make an important contribution to these objectives.","Inflation rose to 9.9 per cent in September, reflecting further increases in all components. Energy price inflation, at 40.7 per cent, remained the main driver of overall inflation, with an increasing contribution from gas and electricity prices. Food price inflation also rose further, to 11.8 per cent, as high input costs made food production more expensive.","Supply bottlenecks are gradually easing, though their lagged impact is still contributing to inflation. The impact of pent-up demand, while weakening, is still driving up prices in the services sector. The depreciation of the euro has added to the build-up of inflationary pressures.","Price pressures are evident in more and more sectors, in part owing to the impact of high energy costs feeding through to the whole economy. Measures of underlying inflation have thus remained at elevated levels. Among those measures, inflation excluding energy and food rose further to 4.8 per cent in September.","Strong labour markets are likely to support higher wages, as is some catch-up in wages to compensate for higher inflation. Incoming wage data and recent wage agreements indicate that the growth of wages may be picking up. Most measures of longer-term inflation expectations currently stand at around two per cent, although further above-target revisions to some indicators warrant continued monitoring.","The incoming data confirm that risks to the economic growth outlook are clearly on the downside, especially in the near term. A long-lasting war in Ukraine remains a significant risk. Confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A weakening world economy could be an additional drag on growth in the euro area.","The risks to the inflation outlook are primarily on the upside. The major risk in the short term is a further rise in retail energy prices. Over the medium term, inflation may turn out to be higher than expected if there are increases in the prices of energy and food commodities and a stronger pass-through to consumer prices, a persistent worsening of the production capacity of the euro area economy, a persistent rise in inflation expectations above our target, or higher than anticipated wage rises. By contrast, a decline in energy costs and a further weakening of demand would lower price pressures.","Bank funding costs are increasing in response to the rise in market interest rates. Borrowing has also become more expensive for firms and households. Bank lending to firms remains robust, as they need to finance high production costs and build up inventories. At the same time, demand for loans to finance investment has continued to decline. Lending to households is moderating, as credit standards have tightened and demand for loans has decreased in a context of rising interest rates and low consumer confidence.","Our most recent bank lending survey reports that credit standards tightened for all loan categories in the third quarter of the year, as banks are becoming more concerned about the deteriorating outlook for the economy and the risks faced by their customers in the current environment. Banks expect to continue tightening their credit standards in the fourth quarter.","Summing up, today we have raised the three key ECB interest rates by 75 basis points, and expect to raise interest rates further, to ensure the timely return of inflation to our medium-term target. With this third major policy rate increase in a row, we have made substantial progress in withdrawing monetary policy accommodation. The changes to the terms and conditions of our targeted longer-term refinancing operations will also contribute to the ongoing policy normalisation process.","Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term inflation target.","We are now ready to take your questions.","Frankfurt am Main, 15 December 2022","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to raise the three key ECB interest rates by 50 basis points and, based on the substantial upward revision to the inflation outlook, we expect to raise them further. In particular, we judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our two per cent medium-term target. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.","The key ECB interest rates are our primary tool for setting the monetary policy stance. The Governing Council today also discussed principles for normalising the Eurosystem’s monetary policy securities holdings. From the beginning of March 2023 onwards, the asset purchase programme (APP) portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of the second quarter of 2023 and its subsequent pace will be determined over time.","At its February meeting the Governing Council will announce the detailed parameters for reducing the APP holdings. The Governing Council will regularly reassess the pace of the APP portfolio reduction to ensure it remains consistent with the overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions. By the end of 2023, we will also review our operational framework for steering short-term interest rates, which will provide information regarding the endpoint of the balance sheet normalisation process.","We decided to raise interest rates today, and expect to raise them significantly further, because inflation remains far too high and is projected to stay above our target for too long. According to Eurostat’s flash estimate, inflation was 10.0 per cent in November, slightly lower than the 10.6 per cent recorded in October. The decline resulted mainly from lower energy price inflation. Food price inflation and underlying price pressures across the economy have strengthened and will persist for some time. Amid exceptional uncertainty, Eurosystem staff have significantly revised up their inflation projections. They now see average inflation reaching 8.4 per cent in 2022 before decreasing to 6.3 per cent in 2023, with inflation expected to decline markedly over the course of the year. Inflation is then projected to average 3.4 per cent in 2024 and 2.3 per cent in 2025. Inflation excluding energy and food is projected to be 3.9 per cent on average in 2022 and to rise to 4.2 per cent in 2023, before falling to 2.8 per cent in 2024 and 2.4 per cent in 2025.","The euro area economy may contract in the current quarter and the next quarter, owing to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions. According to the latest Eurosystem staff projections, a recession would be relatively short-lived and shallow. Growth is nonetheless expected to be subdued next year and has been revised down significantly compared with the previous projections. Beyond the near term, growth is projected to recover as the current headwinds fade. Overall, the Eurosystem staff projections now see the economy growing by 3.4 per cent in 2022, 0.5 per cent in 2023, 1.9 per cent in 2024 and 1.8 per cent in 2025.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","Economic growth in the euro area slowed to 0.3 per cent in the third quarter of the year. High inflation and tighter financing conditions are dampening spending and production by reducing real household incomes and pushing up costs for firms.","The world economy is also slowing, in a context of continued geopolitical uncertainty, especially owing to Russia’s unjustified war against Ukraine and its people, and tighter financing conditions worldwide. The past deterioration in the terms of trade, reflecting the faster rise in import prices than in export prices, continues to weigh on purchasing power in the euro area.","On the positive side, employment increased by 0.3 per cent in the third quarter, and unemployment hit a new historical low of 6.5 per cent in October. Rising wages are set to restore some lost purchasing power, supporting consumption. As the economy weakens, however, job creation is likely to slow, and unemployment could rise over the coming quarters.","Fiscal support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. Fiscal measures falling short of these principles are likely to exacerbate inflationary pressures, which would necessitate a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, can help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly.","Inflation declined to 10.0 per cent in November, mainly on the back of lower energy price inflation, while services inflation also edged down. Food price inflation rose further to 13.6 per cent, however, as high input costs in food production were passed through to consumer prices.","Price pressures remain strong across sectors, partly as a result of the impact of high energy costs throughout the economy. Inflation excluding energy and food was unchanged in November, at 5.0 per cent, and other measures of underlying inflation are also high. Fiscal measures to compensate households for high energy prices and inflation are set to dampen inflation over next year but will raise it once they are withdrawn.","Supply bottlenecks are gradually easing, although their effects are still contributing to inflation, pushing up goods prices in particular. The same holds true for the lifting of pandemic-related restrictions: while weakening, the effect of pent-up demand is still driving up prices, especially in the services sector. The depreciation of the euro this year is also continuing to feed through to consumer prices.","Wage growth is strengthening, supported by robust labour markets and some catch-up in wages to compensate workers for high inflation. As these factors are set to remain in place, the Eurosystem staff projections see wages growing at rates well above historical averages and pushing up inflation throughout the projection period. Most measures of longer-term inflation expectations currently stand at around two per cent, although further above-target revisions to some indicators warrant continued monitoring.","Risks to the economic growth outlook are on the downside, especially in the near term. The war against Ukraine remains a significant downside risk to the economy. Energy and food costs could also remain persistently higher than expected. There could be an additional drag on growth in the euro area if the world economy were to weaken more sharply than we expect.","The risks to the inflation outlook are primarily on the upside. In the near term, existing pipeline pressures could lead to stronger than expected rises in retail prices for energy and food. Over the medium term, risks stem primarily from domestic factors such as a persistent rise in inflation expectations above our target or higher than anticipated wage rises. By contrast, a decline in energy costs or a further weakening of demand would lower price pressures.","As we tighten monetary policy, borrowing is becoming more expensive for firms and households. Bank lending to firms remains robust, as firms replace bonds with bank loans and use credit to finance the higher costs of production and investment. Households are borrowing less, because of tighter credit standards, rising interest rates, worsening prospects for the housing market and lower consumer confidence.","In line with our monetary policy strategy, twice a year the Governing Council assesses in depth the interrelation between monetary policy and financial stability. The financial stability environment has deteriorated since our last review in June 2022 owing to a weaker economy and rising credit risk. In addition, sovereign vulnerabilities have risen amid the weaker economic outlook and weaker fiscal positions. Tighter financing conditions would mitigate the build-up of financial vulnerabilities and lower tail risks to inflation over the medium term, at the cost of a higher risk of systemic stress and greater downside risks to growth in the short term. In addition, the liquidity needs of non-bank financial institutions may amplify market volatility. At the same time, euro area banks have comfortable levels of capital, which helps to reduce the side effects of tighter monetary policy on financial stability. Macroprudential policy remains the first line of defence in preserving financial stability and addressing medium-term vulnerabilities.","Summing up, we have today raised the three key ECB interest rates by 50 basis points and, based on the substantial upward revision to our inflation outlook, we expect to raise them further. In particular, we judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our two per cent medium-term target. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. Moreover, from the beginning of March 2023 onwards, the APP portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all of the principal payments from maturing securities.","Our future policy rate decisions will continue to be data-dependent and determined meeting by meeting. We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term inflation target.","We are now ready to take your questions.","Frankfurt am Main, 2 February 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","We would like to begin by congratulating Croatia on joining the euro area on 1 January 2023. We also warmly welcome Boris Vujčić, the Governor of Hrvatska narodna banka, to the Governing Council. We will now report on the outcome of today’s meeting.","The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to our two per cent medium-term target. Accordingly, the Governing Council today decided to raise the three key ECB interest rates by 50 basis points and we expect to raise them further. In view of the underlying inflation pressures, we intend to raise interest rates by another 50 basis points at our next monetary policy meeting in March and we will then evaluate the subsequent path of our monetary policy. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. In any event, our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.","The Governing Council today also decided on the modalities for reducing the Eurosystem’s holdings of securities under the asset purchase programme (APP). As communicated in December, the APP portfolio will decline by €15 billion per month on average from the beginning of March until the end of June 2023, and the subsequent pace of portfolio reduction will be determined over time. Partial reinvestments will be conducted broadly in line with current practice. In particular, the remaining reinvestment amounts will be allocated proportionally to the share of redemptions across each constituent programme of the APP and, under the public sector purchase programme (PSPP), to the share of redemptions of each jurisdiction and across national and supranational issuers. For our corporate bond purchases, the remaining reinvestments will be tilted more strongly towards issuers with a better climate performance. Without prejudice to our price stability objective, this approach will support the gradual decarbonisation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris Agreement.","The decisions taken today are set out in a press release available on our website. The detailed modalities for reducing the APP holdings are described in a separate press release to be published at 15:45 CET.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","According to Eurostat’s preliminary flash estimate, the euro area economy grew by 0.1 per cent in the fourth quarter of 2022. While above the December Eurosystem staff projections, this outcome means that economic activity has slowed markedly since mid-2022 and we expect it to stay weak in the near term. Subdued global activity and high geopolitical uncertainty, especially owing to Russia’s unjustified war against Ukraine and its people, continue to act as headwinds to euro area growth. Together with high inflation and tighter financing conditions, these headwinds dampen spending and production, especially in the manufacturing sector.","However, supply bottlenecks are gradually easing, the supply of gas has become more secure, firms are still working off large order backlogs and confidence is improving. Moreover, output in the services sector has been holding up, supported by continuing reopening effects and stronger demand for leisure activities. Rising wages and the recent decline in energy price inflation are also set to ease the loss of purchasing power that many people have experienced owing to high inflation. This, in turn, will support consumption. Overall, the economy has proved more resilient than expected and should recover over the coming quarters.","The unemployment rate remained at its historical low of 6.6 per cent in December 2022. However, the rate at which jobs are being created may slow and unemployment could rise over the coming quarters.","Government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. In particular, as the energy crisis becomes less acute, it is important to now start rolling these measures back promptly in line with the fall in energy prices and in a concerted manner. Any such measures falling short of these principles are likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, can help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly.","According to Eurostat’s flash estimate, which has been calculated using Eurostat estimates for Germany, inflation was 8.5 per cent in January. This would be 0.7 percentage points lower than the December figure, with the decline owing mainly to a renewed sharp drop in energy prices. Market-based indicators suggest that energy prices over the coming years will be significantly lower than expected at the time of our last meeting. Food price inflation edged higher to 14.1 per cent, as the past surge in the cost of energy and of other inputs for food production is still feeding through to consumer prices.","Price pressures remain strong, partly because high energy costs are spreading throughout the economy. Inflation excluding energy and food remained at 5.2 per cent in January, with inflation for non-energy industrial goods rising to 6.9 per cent and services inflation declining to 4.2 per cent. Other indicators of underlying inflation are also still high. Government measures to compensate households for high energy prices will dampen inflation in 2023 but are expected to raise inflation once they expire. At the same time, the scale of some of these measures depends on the evolution of energy prices and their expected contribution to inflation is particularly uncertain.","Although supply bottlenecks are gradually easing, their delayed effects are still pushing up goods price inflation. The same holds true for the lifting of pandemic-related restrictions: while weakening, the effect of pent-up demand is still driving up prices, especially in the services sector.","Wages are growing faster, supported by robust labour markets, with some catch-up to high inflation becoming the main theme in wage negotiations. At the same time, recent data on wage dynamics have been in line with the December Eurosystem staff projections. Most measures of longer-term inflation expectations currently stand at around two per cent, but these warrant continued monitoring.","The risks to the outlook for economic growth have become more balanced. Russia’s unjustified war against Ukraine and its people continues to be a significant downside risk to the economy and could again push up the costs of energy and food. There could also be an additional drag on euro area growth if the world economy weakened more sharply than we expect. Moreover, the recovery would face obstacles if the pandemic were to re-intensify and cause renewed supply disruptions. However, the energy shock could fade away faster than anticipated and euro area companies could adapt more quickly to the challenging international environment. This would support higher growth than currently expected.","The risks to the inflation outlook have also become more balanced, especially in the near term. On the upside, existing pipeline pressures could still send retail prices higher in the near term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. Domestic factors such as a persistent rise in inflation expectations above our target or higher than anticipated wage rises could drive inflation higher, also over the medium term. On the downside, the recent fall in energy prices, if it persists, may slow inflation more rapidly than expected. This downward pressure in the energy component could then also translate into weaker dynamics for underlying inflation. A further weakening of demand would also contribute to lower price pressures than currently anticipated, especially over the medium term.","As we tighten monetary policy, market interest rates are rising further and credit to the private sector is becoming more expensive. Bank lending to firms has decelerated sharply over recent months. This partly stems from lower financing needs for inventories. But it also reflects weakening demand for loans to finance business investment, in the context of a steep upward move in bank lending rates and a considerable tightening in credit standards, which is also visible in our most recent bank lending survey. Household borrowing has continued to weaken as well, reflecting rising lending rates, tighter credit standards and a sharp fall in the demand for mortgages. As loan creation decelerates, money growth is also slowing rapidly, with a marked decline in its most liquid components, including overnight deposits, only partially compensated by a shift to term deposits.","Summing up, the Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to our two per cent medium-term target. Accordingly, we today decided to raise the three key ECB interest rates by 50 basis points and we expect to raise them further. In view of the underlying inflation pressures, we intend to raise interest rates by another 50 basis points at our next monetary policy meeting in March and we will then evaluate the subsequent path of our monetary policy. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. Moreover, from the beginning of March 2023, the APP portfolio will decline at a measured and predictable pace, as the Eurosystem will not reinvest all of the principal payments from maturing securities.","Our future policy rate decisions will continue to be data-dependent and determined meeting by meeting. We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target.","We are now ready to take your questions.","Frankfurt am Main, 16 March 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our two per cent medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to our policy rate decisions, which will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","We are monitoring current market tensions closely and stand ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.","The new ECB staff macroeconomic projections were finalised in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. Prior to these latest developments, the baseline path for headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected. ECB staff now see inflation averaging 5.3 per cent in 2023, 2.9 per cent in 2024 and 2.1 per cent in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6 per cent in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5 per cent in 2024 and 2.2 per cent in 2025, as the upward pressures from past supply shocks and the reopening of the economy fade out and as tighter monetary policy increasingly dampens demand.","The baseline projections for growth in 2023 have been revised up to an average of 1.0 per cent as a result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. ECB staff then expect growth to pick up further, to 1.6 per cent, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 is weaker than projected in December, owing to the tightening of monetary policy.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy stagnated in the fourth quarter of 2022, thus avoiding the previously expected contraction. However, private domestic demand fell sharply. High inflation, prevailing uncertainties and tighter financing conditions dented private consumption and investment, which fell by 0.9 per cent and 3.6 per cent respectively.","Under the baseline, the economy looks set to recover over the coming quarters. Industrial production should pick up as supply conditions improve further, confidence continues to recover, and firms work off large order backlogs. Rising wages and falling energy prices will partly offset the loss of purchasing power that many households are experiencing as a result of high inflation. This, in turn, will support consumer spending.","Moreover, the labour market remains strong, despite the weakening of economic activity. Employment grew by 0.3 per cent in the fourth quarter of 2022 and the unemployment rate stayed at its historical low of 6.6 per cent in January 2023.","Government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. As energy prices fall and risks around the energy supply recede, it is important to start rolling back these measures promptly and in a concerted manner. Measures falling short of these principles are likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework and as stated in the European Commission’s guidance of 8 March 2023, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, can help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly.","Inflation edged down to 8.5 per cent in February. The decline resulted from a renewed sharp drop in energy prices. By contrast, food price inflation increased further, to 15.0 per cent, with the past surge in the cost of energy and of other inputs for food production still feeding through to consumer prices.","Moreover, underlying price pressures remain strong. Inflation excluding energy and food increased to 5.6 per cent in February and other indicators of underlying inflation have also stayed high. Non-energy industrial goods inflation rose to 6.8 per cent in February, mainly reflecting the delayed effects of past supply bottlenecks and high energy prices. Services inflation, which rose to 4.8 per cent in February, is also still being driven by the gradual pass-through of past energy cost increases, pent-up demand from the reopening of the economy and rising wages.","Wage pressures have strengthened on the back of robust labour markets and employees aiming to recoup some of the purchasing power lost owing to high inflation. Moreover, many firms were able to raise their profit margins in sectors faced with constrained supply and resurgent demand. At the same time, most measures of longer-term inflation expectations currently stand at around two per cent, although they warrant continued monitoring, especially in light of recent volatility in market-based inflation expectations.","Risks to the outlook for economic growth are tilted to the downside. Persistently elevated financial market tensions could tighten broader credit conditions more strongly than expected and dampen confidence. Russia’s unjustified war against Ukraine and its people continues to be a significant downside risk to the economy and could again push up the costs of energy and food. There could also be an additional drag on euro area growth if the world economy weakened more sharply than expected. However, companies could adapt more quickly to the challenging international environment and, together with the fading-out of the energy shock, this could support higher growth than currently expected.","The upside risks to inflation include existing pipeline pressures that could still send retail prices even higher than expected in the near term. Domestic factors, such as a persistent rise in inflation expectations above our target or higher than anticipated increases in wages and profit margins, could drive inflation higher, including over the medium term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. The downside risks to inflation include persistently elevated financial market tensions that could accelerate disinflation. In addition, falling energy prices could translate into reduced pressure from underlying inflation and wages. A weakening of demand, including owing to a stronger deceleration of bank credit or a stronger than projected transmission of monetary policy, would also contribute to lower price pressures than currently anticipated, especially over the medium term.","Market interest rates rose considerably in the weeks following our last meeting. But the increase has strongly reversed over recent days in a context of severe financial market tensions. Bank credit to euro area firms has become more expensive. Credit to firms has weakened further, owing to lower demand and tighter credit supply conditions. Household borrowing has become more expensive as well, especially owing to higher mortgage rates. This rise in borrowing costs and the resultant decline in demand, along with tighter credit standards, have led to a further slowdown in the growth of loans to households. Amid these weaker loan dynamics, money growth has slowed sharply, driven by its most liquid components.","Summing up, inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our two per cent medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to our policy rate decisions, which will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. We are monitoring current market tensions closely and stand ready to respond as necessary to preserve price stability and financial stability in the euro area.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 4 May 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","The inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Overall, the incoming information broadly supports the assessment of the medium-term inflation outlook that we formed at our previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.","Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","The key ECB interest rates remain our primary tool for setting the monetary policy stance. In parallel, we will keep reducing the Eurosystem’s asset purchase programme (APP) portfolio at a measured and predictable pace. In line with these principles, the Governing Council expects to discontinue the reinvestments under the APP as of July 2023.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy grew by 0.1 per cent in the first quarter of 2023, according to Eurostat’s preliminary flash estimate. Lower energy prices, the easing of supply bottlenecks and fiscal policy support for firms and households have contributed to the resilience of the economy. At the same time, private domestic demand, especially consumption, is likely to have remained weak.","Business and consumer confidence have recovered steadily in recent months but remain weaker than before Russia’s unjustified war against Ukraine and its people. We see a divergence across sectors of the economy. The manufacturing sector is working through a backlog of orders, but its prospects are worsening. The services sector is growing more strongly, especially owing to the reopening of the economy.","Household incomes are benefiting from the strength of the labour market, with the unemployment rate falling to a new historical low of 6.5 per cent in March. Employment has continued to grow and total hours worked exceed pre-pandemic levels. At the same time, the average number of hours worked remains somewhat below its pre-pandemic level and its recovery has stalled since mid-2022.","As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. Fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, can also help reduce price pressures in the medium term. In this regard, we welcome the publication of the European Commission’s legislative proposals for the reform of the EU’s economic governance framework, which should be concluded soon.","According to Eurostat’s flash estimate, inflation was 7.0 per cent in April, after having dropped from 8.5 per cent in February to 6.9 per cent in March. While base effects led to some increase in energy price inflation, from -0.9 per cent in March to 2.5 per cent in April, the rate stands far below those recorded after the start of Russia’s war against Ukraine. Food price inflation remains elevated, however, standing at 13.6 per cent in April, after 15.5 per cent in March.","Price pressures remain strong. Inflation excluding energy and food was 5.6 per cent in April, having edged down slightly compared with March to return to its February level. Non-energy industrial goods inflation fell to 6.2 per cent in April, from 6.6 per cent in March, when it declined for the first time in several months. But services inflation increased to 5.2 per cent in April, from 5.1 per cent in March. Inflation is still being pushed up by the gradual pass-through of past energy cost increases and supply bottlenecks. In services, especially, it is still being pushed higher also by pent-up demand from the reopening of the economy and by rising wages. The information available up to March suggests that indicators of underlying inflation remain high.","Wage pressures have strengthened further as employees, in a context of a robust labour market, recoup some of the purchasing power they have lost as a result of high inflation. Moreover, in some sectors firms have been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and volatile inflation. Although most measures of longer-term inflation expectations currently stand at around two per cent, some indicators have edged up and warrant continued monitoring.","Renewed financial market tensions, if persistent, would pose a downside risk to the outlook for growth as they could tighten broader credit conditions more strongly than expected and dampen confidence. Russia’s war against Ukraine also continues to be a significant downside risk to the economy. However, the recent reversal of past adverse supply shocks, if sustained, could spur confidence and support higher growth than currently expected. The continued resilience of the labour market, by bolstering household confidence and spending, could also lead to higher growth than anticipated. ","There are still significant upside risks to the inflation outlook. These include existing pipeline pressures that could send retail prices higher than expected in the near term. Moreover, Russia’s war against Ukraine could again push up the costs of energy and food. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recent negotiated wage agreements have added to the upside risks to inflation, especially if profit margins remain high. The downside risks include renewed financial market tensions, which could bring inflation down faster than projected. Weaker demand, due for example to a more marked slowing of bank lending or a stronger transmission of monetary policy, would also lead to lower price pressures than currently anticipated, especially over the medium term.","The euro area banking sector has proved resilient in the face of the financial market tensions that arose ahead of our last meeting. Our policy rate increases are being transmitted strongly to risk-free interest rates and to the financing conditions for firms, households and banks. For firms and households, loan growth has weakened owing to higher borrowing rates, tighter credit supply conditions and lower demand. Our latest bank lending survey reported a tightening of overall credit standards, which was stronger than banks had expected in the previous round and suggests that lending may weaken further. Weak lending has meant that money growth has also continued to decline.","Summing up, the inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Overall, the incoming information broadly supports the assessment of the medium-term inflation outlook that we formed at our previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.","Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 15 June 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","Inflation has been coming down but is projected to remain too high for too long. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. The Governing Council therefore today decided to raise the three key ECB interest rates by 25 basis points.","The rate increase today reflects our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average 5.4 per cent in 2023, 3.0 per cent in 2024 and 2.2 per cent in 2025. Indicators of underlying price pressures remain strong, although some show tentative signs of softening. Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. They now see it reaching 5.1 per cent in 2023, before it declines to 3.0 per cent in 2024 and 2.3 per cent in 2025. Staff have slightly lowered their economic growth projections for this year and next year. They now expect the economy to grow by 0.9 per cent in 2023, 1.5 per cent in 2024 and 1.6 per cent in 2025.","At the same time, our past rate increases are being transmitted forcefully to financing conditions and are gradually having an impact across the economy. Borrowing costs have increased steeply and growth in loans is slowing. Tighter financing conditions are a key reason why inflation is projected to decline further towards our target, as they are expected to increasingly dampen demand.","Our future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","The Governing Council confirms that it will discontinue the reinvestments under the asset purchase programme as of July 2023.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy has stagnated in recent months. As in the fourth quarter of last year, it shrank by 0.1 per cent in the first quarter of 2023, amid a drop in private and public consumption. Economic growth is likely to remain weak in the short run but strengthen in the course of the year, as inflation comes down and supply disruptions continue to ease. Conditions in different sectors of the economy are uneven: manufacturing continues to weaken, partly owing to lower global demand and tighter euro area financing conditions, while services remain resilient.","The labour market remains a source of strength. Almost a million new jobs were added in the first quarter of the year and the unemployment rate stood at its historical low of 6.5 per cent in April. The average number of hours worked has also increased, although it is still somewhat below its pre-pandemic level.","As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. Fiscal policies should be designed to make our economy more productive and gradually bring down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, can also help reduce price pressures in the medium term. The reform of the EU’s economic governance framework should be concluded soon.","Inflation fell further to 6.1 per cent in May, according to Eurostat’s flash estimate, from 7.0 per cent in April. The decline was broad-based. Energy price inflation, which had risen in April, resumed its downward trend and was negative in May. Food price inflation fell again but remained high at 12.5 per cent.","Inflation excluding energy and food declined in May for the second month in a row, to 5.3 per cent from 5.6 per cent in April. Goods inflation decreased further, to 5.8 per cent from 6.2 per cent in April. Services inflation fell for the first time in several months, from 5.2 per cent to 5.0 per cent. Indicators of underlying price pressures remain strong, although some show tentative signs of softening.","Past increases in energy costs are still pushing up prices across the economy. Pent-up demand from the reopening of the economy also continues to drive up inflation, especially in services. Wage pressures, while partly reflecting one-off payments, are becoming an increasingly important source of inflation. Compensation per employee rose by 5.2 per cent in the first quarter of the year and negotiated wages by 4.3 per cent. Moreover, firms in some sectors have been able to keep profits relatively high, especially where demand has outstripped supply. Although most measures of longer-term inflation expectations currently stand at around 2 per cent, some indicators remain elevated and need to be monitored closely.","The outlook for economic growth and inflation remains highly uncertain. Downside risks to growth include Russia’s unjustified war against Ukraine and an increase in broader geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the effects of monetary policy are more forceful than projected. Renewed financial market tensions could lead to even tighter financing conditions than anticipated and weaken confidence. Also, weaker growth in the world economy could further dampen economic activity in the euro area. However, growth could be higher than projected if the strong labour market and receding uncertainty mean that people and businesses become more confident and spend more. ","Upside risks to inflation include potential renewed upward pressures on the costs of energy and food, also related to Russia’s war against Ukraine. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recent wage agreements in a number of countries have added to the upside risks to inflation. By contrast, renewed financial market tensions could bring inflation down faster than projected. Weaker demand, for example due to a stronger transmission of monetary policy, would also lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to other goods and services more quickly than currently anticipated.","Our monetary policy tightening continues to be reflected in risk-free interest rates and broader financing conditions. Funding conditions are tighter for banks and credit is becoming more expensive for firms and households. In April lending rates reached their highest level in more than a decade, standing at 4.4 per cent for business loans and 3.4 per cent for mortgages.","These higher borrowing rates, together with tighter credit supply conditions and lower loan demand, have further weakened credit dynamics. The annual growth of loans to firms declined again in April, to 4.6 per cent. The month-on-month changes have been negative on average since November. Loans to households grew at an annual rate of 2.5 per cent in April and increased only marginally month on month. Weak bank lending and the reduction in the Eurosystem balance sheet led to a continued decline in annual broad money growth to 1.9 per cent in April. Month-on-month changes in broad money have been negative since December.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. The financial stability outlook has remained challenging since our last review in December 2022. Tighter financing conditions are raising banks’ funding costs and the credit risk of outstanding loans. Together with the recent tensions in the US banking system, these factors could give rise to systemic stress and depress economic growth in the short term. Another factor weighing on the resilience of the financial sector is a downturn in the real estate markets, which could be amplified by higher borrowing costs and a rise in unemployment. At the same time, euro area banks have strong capital and liquidity positions, which mitigate these financial stability risks. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities.","Inflation has been coming down but is projected to remain too high for too long. The Governing Council therefore today decided to raise the three key ECB interest rates by 25 basis points, in view of our determination to ensure that inflation returns to our two per cent medium-term target in a timely manner.","Our future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 27 July 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","Inflation continues to decline but is still expected to remain too high for too long. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. The Governing Council therefore today decided to raise the three key ECB interest rates by 25 basis points.","The rate increase today reflects our assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. The developments since our last meeting support our expectation that inflation will drop further over the remainder of the year but will stay above target for an extended period. While some measures show signs of easing, underlying inflation remains high overall. Our past rate increases continue to be transmitted forcefully: financing conditions have tightened again and are increasingly dampening demand, which is an important factor in bringing inflation back to target.","Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our two per cent medium-term target. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","We also decided to set the remuneration of minimum reserves at zero per cent. This decision will preserve the effectiveness of monetary policy by maintaining the current degree of control over the monetary policy stance and ensuring the full pass-through of our interest rate decisions to money markets. At the same time, it will improve the efficiency of monetary policy by reducing the overall amount of interest that needs to be paid on reserves in order to implement the appropriate stance.","The decisions taken today are set out in a press release available on our website. The details of the change to the remuneration of minimum reserves are provided in a separate press release to be published at 15:45 CET.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions are dampening spending. This is weighing especially on manufacturing output, which is also being held down by weak external demand. Housing and business investment are showing signs of weakness as well. Services remain more resilient, especially in contact-intensive subsectors such as tourism. But momentum is slowing in the services sector. The economy is expected to remain weak in the short run. Over time, falling inflation, rising incomes and improving supply conditions should support the recovery.","The labour market remains robust. The unemployment rate stayed at its historical low of 6.5 per cent in May and many new jobs are being created, especially in the services sector. At the same time, forward-looking indicators suggest that this trend might slow down in the coming months and may turn negative for manufacturing.","As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for a stronger monetary policy response. We welcome the recent Eurogroup statement on the euro area fiscal stance, which is consistent with this assessment. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt. Policies to enhance the euro area’s supply capacity can help reduce price pressures in the medium term, while supporting the green transition, which is also being furthered by the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded before the end of this year.","Inflation came down further in June, reaching 5.5 per cent, after 6.1 per cent in May. Energy prices fell again, dropping by 5.6 per cent, year on year. Food price inflation continued to slow but remained high, at 11.6 per cent.","Inflation excluding energy and food edged up to 5.5 per cent in June, with goods and services following diverging trends. Goods inflation decreased further, to 5.5 per cent, from 5.8 per cent in May. Conversely, services inflation rose to 5.4 per cent, from 5.0 per cent in May, owing to robust spending on holidays and travel and also reflecting upward base effects.","The drivers of inflation are changing. External sources of inflation are easing. By contrast, domestic price pressures, including from rising wages and still robust profit margins, are becoming an increasingly important driver of inflation.","While some measures are moving lower, underlying inflation remains high overall, including owing to the persistent impact of past energy price increases on economy-wide prices. Although most measures of longer-term inflation expectations currently stand at around 2 per cent, some indicators remain elevated and need to be monitored closely.","The outlook for economic growth and inflation remains highly uncertain. Downside risks to growth include Russia’s unjustified war against Ukraine and an increase in broader geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the effects of monetary policy are more forceful than expected, or if the world economy weakens and thereby dampens demand for euro area exports. Conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty mean that people and businesses become more confident and spend more.","Upside risks to inflation include potential renewed upward pressures on the costs of energy and food, also related to Russia’s unilateral withdrawal from the Black Sea Grain Initiative. Adverse weather conditions, in light of the unfolding climate crisis, may push up food prices by more than projected. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy – would lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to the prices of other goods and services more quickly than currently anticipated.","Our monetary policy tightening continues to be transmitted strongly to broader financing conditions. Risk-free interest rates over short to medium-term maturities have increased since our last meeting and funding has become more expensive for banks, in part owing to the ongoing phasing-out of the ECB’s targeted longer-term refinancing operations (TLTROs). The large TLTRO repayment in June went smoothly, as banks were well prepared. Average lending rates for business loans and mortgages rose again in May, to 4.6 per cent and 3.6 per cent respectively.","Higher borrowing rates and the associated cuts in spending plans led to a further sharp drop in credit demand in the second quarter, as reported in our latest bank lending survey. Moreover, credit standards for loans to firms and households tightened further, as banks are becoming more concerned about the risks faced by their customers and are less willing to bear these risks. Tighter financing conditions are also making housing less affordable and less attractive as an investment, and demand for mortgages has dropped for the fifth quarter in a row.","Against this background, the annual growth rate of lending continued to decrease in June, falling to 3.0 per cent for firms and 1.7 per cent for households, with annualised growth rates of 0.0 per cent and -0.2 per cent in the second quarter respectively. Amid weak lending and the reduction in the Eurosystem balance sheet, the annual growth rate of broad money fell to 0.6 per cent in June, with an annualised growth rate of -1.1 per cent in the second quarter.","Inflation continues to decline but is still expected to remain too high for too long. The Governing Council therefore today decided to raise the three key ECB interest rates by 25 basis points.","Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our two per cent medium-term target. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 14 September 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","Inflation continues to decline but is still expected to remain too high for too long. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. In order to reinforce progress towards our target, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points.","The rate increase today reflects our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. The September ECB staff macroeconomic projections for the euro area see average inflation at 5.6 per cent in 2023, 3.2 per cent in 2024 and 2.1 per cent in 2025. This is an upward revision for 2023 and 2024 and a downward revision for 2025. The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices. Underlying price pressures remain high, even though most indicators have started to ease. ECB staff have slightly revised down the projected path for inflation excluding energy and food, to an average of 5.1 per cent in 2023, 2.9 per cent in 2024 and 2.2 per cent in 2025. Our past interest rate increases continue to be transmitted forcefully. Financing conditions have tightened further and are increasingly dampening demand, which is an important factor in bringing inflation back to target. With the increasing impact of our tightening on domestic demand and the weakening international trade environment, ECB staff have lowered their economic growth projections significantly. They now expect the euro area economy to expand by 0.7 per cent in 2023, 1.0 per cent in 2024 and 1.5 per cent in 2025.","Based on our current assessment, we consider that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy is likely to remain subdued in the coming months. It broadly stagnated over the first half of the year, and recent indicators suggest it has also been weak in the third quarter. Lower demand for the euro area’s exports and the impact of tight financing conditions are dampening growth, including through lower residential and business investment. The services sector, which had so far been resilient, is now also weakening. Over time, economic momentum should pick up, as real incomes are expected to rise, supported by falling inflation, rising wages and a strong labour market, and this will underpin consumer spending.","The labour market has so far remained resilient despite the slowing economy. The unemployment rate stayed at its historical low of 6.4 per cent in July. While employment grew by 0.2 per cent in the second quarter, momentum is slowing. The services sector, which has been a major driver of employment growth since mid-2022, is now also creating fewer jobs.","As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for an even stronger monetary policy response. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt. Policies to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – can help reduce price pressures in the medium term, while supporting the green transition. The reform of the EU’s economic governance framework should be concluded before the end of this year and progress towards Capital Markets Union should be accelerated.","Inflation declined to 5.3 per cent in July but remained at that level in August, according to Eurostat’s flash estimate. Its decline was interrupted because energy prices rose compared with July. Food price inflation has come down from its peak in March but was still almost 10 per cent in August. In the coming months, the sharp price increases recorded in the autumn of 2022 will drop out of the yearly rates, thus pulling inflation down.","Inflation excluding energy and food fell to 5.3 per cent in August, from 5.5 per cent in July. Goods inflation declined to 4.8 per cent in August, from 5.0 per cent in July and 5.5 per cent in June, owing to better supply conditions, previous drops in energy prices, easing price pressures in the earlier stages of the production chain and weaker demand. Services inflation edged down to 5.5 per cent but was still kept up by strong spending on holidays and travel and by the high growth of wages. The annual growth rate of compensation per employee remained constant at 5.5 per cent in the second quarter of the year. The contribution of labour costs to annual domestic inflation increased in the second quarter, in part owing to weaker productivity, while the contribution of profits fell for the first time since early 2022.","Most measures of underlying inflation are starting to fall as demand and supply have become more aligned and the contribution of past energy price increases is fading out. At the same time, domestic price pressures remain strong.","Most measures of longer-term inflation expectations currently stand at around 2 per cent. But some indicators have increased and need to be monitored closely.","The risks to economic growth are tilted to the downside. Growth could be slower if the effects of monetary policy are more forceful than expected, or if the world economy weakens, for instance owing to a further slowdown in China. Conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty mean that people and businesses become more confident and spend more.","Upside risks to inflation include potential renewed upward pressures on the costs of energy and food. Adverse weather conditions, and the unfolding climate crisis more broadly, could push food prices up by more than expected. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example due to a stronger transmission of monetary policy or a worsening of the economic environment outside the euro area – would lead to lower price pressures, especially over the medium term.","Our monetary policy tightening continues to be transmitted strongly to broader financing conditions. Funding has again become more expensive for banks, as savers are replacing overnight deposits with time deposits that pay more interest and the ECB’s targeted longer-term refinancing operations are being phased out. Average lending rates for business loans and mortgages continued to increase in July, to 4.9 per cent and 3.8 per cent respectively.","Credit dynamics have weakened further. Loans to firms grew at an annual rate of 2.2 per cent in July, down from 3.0 per cent in June. Loans to households also grew less strongly, by 1.3 per cent, after 1.7 per cent in June. In annualised terms based on the last three months of data, household loans declined by 0.8 per cent, which is the strongest contraction since the start of the euro. Amid weak lending and the reduction in the Eurosystem balance sheet, the annual growth rate of M3 fell from 0.6 per cent in June to an all-time low of -0.4 per cent in July. In annualised terms over the past three months, M3 contracted by 1.5 per cent.","Inflation continues to decline but is still expected to remain too high for too long. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. In order to reinforce progress towards our target, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Based on our current assessment, we consider that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Athens, 26 October 2023","Good afternoon, the Vice-President and I welcome you to our press conference. I would like to thank Governor Stournaras for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. Our past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.","We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy remains weak. Recent information suggests that manufacturing output has continued to fall. Subdued foreign demand and tighter financing conditions are increasingly weighing on investment and consumer spending. The services sector is also weakening further. This is mainly because weaker industrial activity is spilling over to other sectors, the impetus from reopening effects is fading and the impact of higher interest rates is broadening. The economy is likely to remain weak for the remainder of this year. But as inflation falls further, household real incomes recover and the demand for euro area exports picks up, the economy should strengthen over the coming years.","Economic activity has so far been supported by the strength of the labour market. The unemployment rate stood at a historical low of 6.4 per cent in August. At the same time, there are signs that the labour market is weakening. Fewer new jobs are being created, including in services, consistent with the cooling economy gradually feeding through to employment.","As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt. Structural reforms and investments to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – can help reduce price pressures in the medium term, while supporting the green and digital transitions. To that end, the reform of the EU’s economic governance framework should be concluded before the end of this year and progress towards Capital Markets Union and the completion of Banking Union should be accelerated.","Inflation dropped to 4.3 per cent in September, almost a full percentage point lower than its August level. In the near term, it is likely to come down further, as the sharp price increases in energy and food recorded in autumn 2022 will drop out of the yearly rates. September’s decline was broad-based. Food price inflation slowed again, although it remains high by historical standards. In annual terms, energy prices fell by 4.6 per cent but, most recently, have risen again and become less predictable in view of the new geopolitical tensions.","Inflation excluding energy and food dropped to 4.5 per cent in September, from 5.3 per cent in August. This fall was supported by improving supply conditions, the pass-through of previous declines in energy prices, and the impact of tighter monetary policy on demand and corporate pricing power. Goods and services inflation rates fell substantially, to 4.1 per cent and 4.7 per cent respectively, with services inflation also being pulled down by pronounced base effects. Price pressures in tourism and travel appear to be moderating.","Most measures of underlying inflation continue to decline. At the same time, domestic price pressures are still strong, reflecting also the growing importance of rising wages. Measures of longer-term inflation expectations mostly stand around 2 per cent. Nonetheless, some indicators remain elevated and need to be monitored closely.","The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy would also weigh on growth. Russia’s unjustified war against Ukraine and the tragic conflict triggered by the terrorist attacks in Israel are key sources of geopolitical risk. This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further. Conversely, growth could be higher than expected if the still resilient labour market and rising real incomes mean that people and businesses become more confident and spend more, or the world economy grows more strongly than expected.","Upside risks to inflation could come from higher energy and food costs. The heightened geopolitical tensions could drive up energy prices in the near term, while making the medium-term outlook more uncertain. Extreme weather, and the unfolding climate crisis more broadly, could push food prices up by more than expected. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy or a worsening of the economic environment in the rest of the world amid greater geopolitical risks – would ease price pressures, especially over the medium term.","Longer-term interest rates have risen markedly since our last meeting, reflecting strong increases in other major economies. Our monetary policy continues to transmit strongly into broader financing conditions. Funding has become more expensive for banks, and interest rates for business loans and mortgages rose again in August, to 5.0 per cent and 3.9 per cent respectively.","Higher borrowing rates, with the associated cuts in investment plans and house purchases, led to a further sharp drop in credit demand in the third quarter, as reported in our latest bank lending survey. Moreover, credit standards for loans to firms and households tightened further. Banks are becoming more concerned about the risks faced by their customers and are less willing to take on risks themselves.","Against this background, credit dynamics have weakened further. The annual growth rate of loans to firms has dropped sharply, from 2.2 per cent in July to 0.7 per cent in August and 0.2 per cent in September. Loans to households remained subdued, with the growth rate slowing to 1.0 per cent in August and 0.8 per cent in September. Amid weak lending and the reduction in the Eurosystem balance sheet, the annual growth rate of M3 fell to -1.3 per cent in August – the lowest level recorded since the start of the euro – and still stood at -1.2 per cent in September.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. Our past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to ensure such a timely return. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 14 December 2023","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term. According to the latest Eurosystem staff projections for the euro area, inflation is expected to decline gradually over the course of next year, before approaching our two per cent target in 2025. Overall, staff expect headline inflation to average 5.4 per cent in 2023, 2.7 per cent in 2024, 2.1 per cent in 2025 and 1.9 per cent in 2026. Compared with the September staff projections, this amounts to a downward revision for 2023 and especially for 2024.","Underlying inflation has eased further. But domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs. Eurosystem staff expect inflation excluding energy and food to average 5.0 per cent in 2023, 2.7 per cent in 2024, 2.3 per cent in 2025 and 2.1 per cent in 2026.","Our past interest rate increases continue to be transmitted forcefully to the economy. Tighter financing conditions are dampening demand, and this is helping to push down inflation. Eurosystem staff expect economic growth to remain subdued in the near term. Beyond that, the economy is expected to recover because of rising real incomes – as people benefit from falling inflation and growing wages – and improving foreign demand. Eurosystem staff therefore see growth picking up from an average of 0.6 per cent for 2023 to 0.8 per cent for 2024, and to 1.5 per cent for both 2025 and 2026.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.","We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.","The key ECB interest rates are our primary tool for setting the monetary policy stance. We also decided today to advance the normalisation of the Eurosystem’s balance sheet. The Governing Council intends to continue to reinvest, in full, the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) during the first half of 2024. Over the second half of the year, it intends to reduce the PEPP portfolio by €7.5 billion per month on average. The Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy contracted slightly in the third quarter, mostly owing to a decline in inventories. Tighter financing conditions and subdued foreign demand are likely to continue weighing on economic activity in the near term. Prospects are especially weak for construction and manufacturing, the two sectors most affected by higher interest rates. Services activity is also set to soften in the coming months. This is due to spillovers from weaker industrial activity, fading effects from the reopening of the economy and the broadening impact of tighter financing conditions.","The labour market continues to support the economy. The unemployment rate stood at 6.5 per cent in October and employment grew by 0.2 per cent over the third quarter. At the same time, the weaker economy is dampening the demand for workers, with firms advertising fewer vacancies in recent months. Moreover, even though more people are in work, the total number of hours worked edged down by 0.1 per cent in the third quarter.","As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy. Fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt. Structural reforms and investments to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – can help reduce price pressures in the medium term, while supporting the green and digital transitions. To that end, it is important to swiftly agree on the reform of the EU’s economic governance framework. Moreover, it is imperative that progress towards Capital Markets Union and the completion of Banking Union be accelerated.","Inflation dropped over the past two months, falling to an annual rate of 2.4 per cent in November according to Eurostat’s flash release. This decline was broad-based. Energy price inflation fell further and food price inflation also came down, despite remaining relatively high overall. This month, inflation is likely to pick up on account of an upward base effect for the cost of energy. In 2024, we expect inflation to decline more slowly because of further upward base effects and the phasing-out of past fiscal measures aimed at limiting the repercussions of the energy price shock.","Inflation excluding energy and food dropped by almost a full percentage point over the past two months, falling to 3.6 per cent in November. This reflects improving supply conditions, the fading effects of the past energy shock and the impact of tighter monetary policy on demand and on the pricing power of firms. The inflation rates for goods and services fell to 2.9 per cent and 4.0 per cent respectively.","All measures of underlying inflation declined in October, but domestic price pressures remained elevated, chiefly because of strong wage growth together with falling productivity. Measures of longer-term inflation expectations mostly stand around 2 per cent, with some market-based indicators of inflation compensation declining from elevated levels.","The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are key sources of geopolitical risk. This may result in firms and households becoming less confident about the future. Growth could be higher if rising real incomes raise spending by more than anticipated, or the world economy grows more strongly than expected.","Upside risks to inflation include the heightened geopolitical tensions, which could raise energy prices in the near term, and extreme weather events, which could drive up food prices. Inflation could also turn out higher than anticipated if inflation expectations were to move above our target, or if wages or profit margins increased by more than expected. By contrast, inflation may surprise on the downside if monetary policy dampens demand by more than expected or the economic environment in the rest of the world worsens unexpectedly, potentially owing in part to the recent rise in geopolitical risks.","Market interest rates have fallen markedly since our last meeting and lie below the rates embedded in the staff projections. Our restrictive monetary policy continues to transmit strongly into broader financing conditions. Lending rates rose again in October, to 5.3 per cent for business loans and 3.9 per cent for mortgages.","Higher borrowing rates, subdued loan demand and tighter loan supply have further weakened credit dynamics. Loans to firms declined at an annual rate of 0.3 per cent in October and loans to households also remained subdued, growing at an annual rate of 0.6 per cent. With weaker lending and the reduction in the Eurosystem balance sheet, broad money – as measured by M3 – has continued to contract. In October it fell at an annual rate of 1.0 per cent.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks have demonstrated their resilience. They have high capital ratios and have become significantly more profitable over the past year. But the financial stability outlook remains fragile in the current environment of tightening financing conditions, weak growth and geopolitical tensions. In particular, the situation could worsen if banks’ funding costs were to increase by more than expected and if more borrowers were to struggle to repay their loans. At the same time, the overall impact of such a scenario on the economy should be contained if financial markets react in an orderly fashion. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, and the measures in place contribute to preserving the financial system’s resilience.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to ensure such a timely return. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.","The Governing Council intends to reduce the PEPP portfolio over the second half of 2024 and to discontinue its reinvestments under the PEPP at the end of 2024.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 25 January 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and our past interest rate increases keep being transmitted forcefully into financing conditions. Tight financing conditions are dampening demand, and this is helping to push down inflation.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.","We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy is likely to have stagnated in the final quarter of 2023. The incoming data continue to signal weakness in the near term. However, some forward-looking survey indicators point to a pick-up in growth further ahead.","The labour market has remained robust. The unemployment rate, at 6.4 per cent in November, has fallen back to its lowest level since the start of the euro and more workers have entered the labour force. At the same time, demand for labour is slowing, with fewer vacancies being advertised.","Governments should continue to roll back energy-related support measures to avoid driving up medium-term inflationary pressures. Fiscal and structural policies should be designed to make our economy more productive and competitive, as well as to gradually bring down high public debt ratios. Structural reforms and investments to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – can help reduce price pressures in the medium term, while supporting the green and digital transitions. Following the recent ECOFIN Council agreement on the reform of the EU’s economic governance framework, the legislative process should be concluded swiftly so that the new rules can be implemented without delay. Moreover, it is imperative that progress towards Capital Markets Union and the completion of Banking Union be accelerated.","Inflation rose to 2.9 per cent in December as some of the past fiscal measures to cushion the impact of high energy prices dropped out of the annual inflation rate, although the rebound was weaker than expected. Aside from this base effect, the overall trend of declining inflation continued. Food price inflation dropped to 6.1 per cent in December. Inflation excluding energy and food also declined again, to 3.4 per cent, due to a fall in goods inflation to 2.5 per cent. Services inflation was stable at 4.0 per cent.","Inflation is expected to ease further over the course of this year as the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy fade, and tighter monetary policy continues to weigh on demand.","Almost all measures of underlying inflation declined further in December. The elevated rate of wage increases and falling labour productivity are keeping domestic price pressures high, although these too have started to ease. At the same time, lower unit profits have started to moderate the inflationary effect of rising unit labour costs. Measures of shorter-term inflation expectations have come down markedly, while those of longer-term inflation expectations mostly stand around 2 per cent.","The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are key sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if rising real incomes mean spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and hamper global trade. Inflation could also turn out higher than anticipated if wages increase by more than expected or profit margins prove more resilient. By contrast, inflation may surprise on the downside if monetary policy dampens demand by more than expected, or if the economic environment in the rest of the world worsens unexpectedly. Moreover, inflation could decline more quickly in the near term if energy prices evolve in line with the recent downward shift in market expectations of the future path for oil and gas prices.","Market interest rates have moved broadly sideways since our last meeting. Our restrictive monetary policy continues to transmit strongly into broader financing conditions. Lending rates on business loans declined slightly, to 5.2 per cent in November, while mortgage rates increased further to 4.0 per cent.","High borrowing rates, with the associated cutbacks in investment plans and house purchases, led to a further drop in credit demand in the fourth quarter, as reported in our latest bank lending survey. While the tightening of credit standards for loans to firms and households moderated, they remained tight, with banks concerned about the risks faced by their customers.","Against this background, credit dynamics have improved somewhat but overall remain weak. Loans to firms stagnated in November compared with a year earlier – after contracting in October – as the monthly flow of short-term loans rebounded. Loans to households grew at a subdued annual rate of 0.5 per cent.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 7 March 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Since our last meeting in January, inflation has declined further. In the latest ECB staff projections, inflation has been revised down, in particular for 2024 which mainly reflects a lower contribution from energy prices. Staff now project inflation to average 2.3 per cent in 2024, 2.0 per cent in 2025 and 1.9 per cent in 2026. The projections for inflation excluding energy and food have also been revised down and average 2.6 per cent for 2024, 2.1 per cent for 2025 and 2.0 per cent for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages. Financing conditions are restrictive and our past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6 per cent, with economic activity expected to remain subdued in the near term. Thereafter, staff expect the economy to pick up and to grow at 1.5 per cent in 2025 and 1.6 per cent in 2026, supported initially by consumption and later also by investment.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary.","We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy remains weak. Consumers continued to hold back on their spending, investment moderated and companies exported less, reflecting a slowdown in external demand and some losses in competitiveness. However, surveys point to a gradual recovery over the course of this year. As inflation falls and wages continue to grow, real incomes will rebound, supporting growth. In addition, the dampening impact of past interest rate increases will gradually fade and demand for euro area exports should pick up.","The unemployment rate is at its lowest since the start of the euro. Employment grew by 0.3 per cent in the final quarter of 2023, again outpacing economic activity. As a result, output per person declined further. Meanwhile, employers are posting fewer job vacancies, while fewer firms are reporting that their production is being limited by labour shortages.","Governments should continue to roll back energy-related support measures to allow the disinflation process to proceed sustainably. Fiscal and structural policies should be strengthened to make our economy more productive and competitive, expand supply capacity and gradually bring down high public debt ratios. A speedier implementation of the Next Generation EU programme and more determined efforts to remove national barriers to deeper and more integrated banking and capital markets can help increase investment in the green and digital transitions and reduce price pressures in the medium term. The EU’s revised economic governance framework should be implemented without delay.","Inflation edged down to 2.8 per cent in January and, according to Eurostat’s flash estimate, declined further to 2.6 per cent in February. Food price inflation fell again, to 5.6 per cent in January and 4.0 per cent in February, while energy prices in both months continued to decline compared with a year ago but at a lower rate than in December. Goods price inflation also fell further, to 2.0 per cent in January and 1.6 per cent in February. Services inflation, after remaining at 4.0 per cent for three months in a row, edged lower to 3.9 per cent in February.","Most measures of underlying inflation declined further in January as the impact of past supply shocks continued to fade and tight monetary policy weighed on demand. However, domestic price pressures are still elevated, in part owing to robust wage growth and falling labour productivity. At the same time, there are signs that growth in wages is starting to moderate. In addition, profits are absorbing part of the rising labour costs, which reduces the inflationary effects.","Inflation is expected to continue this downward trend in the coming months. Further ahead, it is expected to decline to our target as labour costs moderate and the effects of past energy shocks, supply bottlenecks and the reopening of the economy after the pandemic fade. Measures of longer-term inflation expectations remain broadly stable, with most standing around 2 per cent.","The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation comes down more quickly than expected and rising real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increase by more than expected or profit margins prove more resilient. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","Market interest rates have risen since our January meeting and our monetary policy has kept broader financing conditions restrictive. Lending rates on business loans have broadly stabilised, while mortgage rates declined in December and January. Nevertheless, lending rates remain elevated, at 5.2 per cent for business loans and 3.9 per cent for mortgages.","Bank lending to firms had turned positive in December, growing at an annual rate of 0.5 per cent. But, in January, it edged lower, to 0.2 per cent, owing to a negative flow in the month. The growth in loans to households continued to weaken, falling to 0.3 per cent on an annual basis in January. Broad money – as measured by M3 – grew at a subdued rate of 0.1 per cent.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 11 April 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits. Financing conditions remain restrictive and our past interest rate increases continue to weigh on demand, which is helping to push down inflation. But domestic price pressures are strong and are keeping services price inflation high.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We consider that the key ECB interest rates are at levels that are making a substantial contribution to the ongoing disinflation process. Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary. If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and we are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy remained weak in the first quarter. While spending on services is resilient, manufacturing firms are facing weak demand and production is still subdued, especially in energy-intensive sectors. Surveys point to a gradual recovery over the course of this year, led by services. This recovery is expected to be supported by rising real incomes, resulting from lower inflation, increased wages and improved terms of trade. In addition, the growth of euro area exports should pick up over the coming quarters, as the global economy recovers and spending shifts further towards tradables. Finally, monetary policy should exert less of a drag on demand over time.","The unemployment rate is at its lowest level since the start of the euro. At the same time, the tightness in the labour market continues to gradually decline, with employers posting fewer job vacancies.","Governments should continue to roll back energy-related support measures so that disinflation can proceed sustainably. Implementing the EU’s revised economic governance framework fully and without delay will help governments bring down budget deficits and debt ratios on a sustained basis. National fiscal and structural policies should be aimed at making the economy more productive and competitive, which would help to reduce price pressures in the medium term. At the European level, an effective and speedy implementation of the Next Generation EU programme and a strengthening of the Single Market would help foster innovation and increase investment in the green and digital transitions. More determined and concrete efforts to complete the banking union and the capital markets union would help mobilise the massive private investment necessary to achieve this, as the Governing Council stressed in its statement of 7 March 2024.","Inflation has continued to decline, from an annual rate of 2.6 per cent in February to 2.4 per cent in March, according to Eurostat’s flash estimate. Food price inflation dropped to 2.7 per cent in March, from 3.9 per cent in February, while energy price inflation stood at -1.8 per cent in March, after -3.7 per cent in the previous month. Goods price inflation fell again in March, to 1.1 per cent, from 1.6 per cent in February. However, services price inflation remained high in March, at 4.0 per cent.","Most measures of underlying inflation fell further in February, confirming the picture of gradually diminishing price pressures. While domestic inflation remains high, wages and unit profits grew less strongly than anticipated in the last quarter of 2023, but unit labour costs remained high, in part reflecting weak productivity growth. More recent indicators point to further moderation in wage growth.","Inflation is expected to fluctuate around current levels in the coming months and to then decline to our target next year, owing to weaker growth in labour costs, the unfolding effects of our restrictive monetary policy, and the fading impact of the energy crisis and the pandemic. Measures of longer-term inflation expectations remain broadly stable, with most standing around 2 per cent.","The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation comes down more quickly than expected and rising real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increase by more than expected or profit margins prove more resilient. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","Market interest rates have been broadly stable since our March meeting and wider financing conditions remain restrictive. The average interest rate on business loans edged down to 5.1 per cent in February, from 5.2 per cent in January. Mortgage rates were 3.8 per cent in February, down from 3.9 per cent in January.","Still elevated borrowing rates and associated cutbacks in investment plans led firms to further reduce their demand for loans in the first quarter of 2024, as reported in our latest bank lending survey. Credit standards for loans remained tight, with a further slight tightening for lending to firms and a moderate easing for mortgages.","Against this background, credit dynamics remain weak. Bank lending to firms grew marginally faster in February, at an annual rate of 0.4 per cent, up from 0.2 per cent in January. Growth in loans to households remained unchanged in February, at 0.3 per cent on an annual basis. Broad money – as measured by M3 – grew at a subdued rate of 0.4 per cent in February.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We consider that the key ECB interest rates are at levels that are making a substantial contribution to the ongoing disinflation process. Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary. If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and we are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 6 June 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. Based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady. Since our meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons. Monetary policy has kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down.","At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year. The latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections. Staff now see headline inflation averaging 2.5 per cent in 2024, 2.2 per cent in 2025 and 1.9 per cent in 2026. For inflation excluding energy and food, staff project an average of 2.8 per cent in 2024, 2.2 per cent in 2025 and 2.0 per cent in 2026. Economic growth is expected to pick up to 0.9 per cent in 2024, 1.4 per cent in 2025 and 1.6 per cent in 2026.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The Governing Council today also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year. The modalities for reducing the PEPP holdings will be broadly in line with those followed under the asset purchase programme (APP).","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","After five quarters of stagnation, the euro area economy grew by 0.3 per cent over the first quarter of 2024. The services sector is expanding, and manufacturing is showing signs of stabilisation at low levels. We expect the economy to continue to recover as higher wages and improved terms of trade push up real incomes. Stronger exports should also support growth over the coming quarters, as global demand for goods and services rises. Finally, monetary policy should exert less of a drag on demand over time.","Employment rose by 0.3 per cent in the first quarter of this year, with around 500,000 new jobs created, and surveys point to continued job growth in the near term. The unemployment rate edged down to 6.4 per cent in April, its lowest level since the start of the euro. Companies are still posting many job vacancies, though slightly fewer than before.","National fiscal and structural policies should aim at making the economy more productive and competitive, which would help to raise potential growth and reduce price pressures in the medium term. An effective, speedy and full implementation of the Next Generation EU programme, progress towards capital markets union and the completion of banking union, and a strengthening of the Single Market would help foster innovation and increase investment in the green and digital transitions. Implementing the EU’s revised economic governance framework fully and without delay will help governments bring down budget deficits and debt ratios on a sustained basis.","Annual inflation rose to 2.6 per cent in May, from 2.4 per cent in April, according to Eurostat’s flash estimate. Food price inflation declined to 2.6 per cent. Energy price inflation increased to 0.3 per cent, after recording negative annual rates for a year. Goods price inflation continued to decrease in May, to 0.8 per cent. By contrast, services price inflation rose markedly, to 4.1 per cent from 3.7 per cent in April.","Most measures of underlying inflation declined further in April, the last month for which data are available, confirming the picture of gradually diminishing price pressures. However, domestic inflation remains high. Wages are still rising at an elevated pace, making up for the past inflation surge. Owing to the staggered nature of the wage adjustment process and the important role of one-off payments, labour costs will likely fluctuate over the near term, as seen in the pick-up in negotiated wages in the first quarter. At the same time, forward-looking indicators signal that wage growth will moderate over the course of the year. Profits are absorbing part of the pronounced rise in unit labour costs, which reduces its inflationary effects.","Inflation is expected to fluctuate around current levels for the rest of the year, including due to energy-related base effects. It is then expected to decline towards our target over the second half of next year, owing to weaker growth in labour costs, the unfolding effects of our restrictive monetary policy, and the fading impact of the energy crisis and the pandemic. Measures of longer-term inflation expectations have remained broadly stable, with most standing at around 2 per cent.","The risks to economic growth are balanced in the near term but remain tilted to the downside over the medium term. A weaker world economy or an escalation in trade tensions between major economies would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the effects of monetary policy turn out stronger than expected. Growth could be higher if inflation comes down more quickly than expected and rising confidence and real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Inflation could turn out higher than anticipated if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","Market interest rates have risen since our April meeting. Financing costs have plateaued at restrictive levels as our past policy rate increases have worked their way through the financial system. The average interest rates on new loans to firms and on new mortgages were unchanged in April, at 5.2 per cent and 3.8 per cent respectively.","Credit dynamics remain weak. Bank lending to firms grew at an annual rate of 0.3 per cent in April, down slightly from the previous month. Loans to households continued to grow at 0.2 per cent on an annual basis. The annual growth in broad money – as measured by M3 – rose to 1.3 per cent in April, from 0.9 per cent in March.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks remain resilient. The improving economic outlook has fostered financial stability, but heightened geopolitical risks cloud the horizon. An unexpected tightening of global financing conditions could prompt a repricing of financial and non-financial assets, with negative effects on the wider economy. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities. The measures that are currently in place or will soon take effect are helping to keep the financial system resilient.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 18 July 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information broadly supports our previous assessment of the medium-term inflation outlook. While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June. In line with expectations, the inflationary impact of high wage growth has been buffered by profits. Monetary policy is keeping financing conditions restrictive. At the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above our target well into next year.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter. Services continue to lead the recovery, while industrial production and goods exports have been weak. Investment indicators point to muted growth in 2024, amid heightened uncertainty. Looking ahead, we expect the recovery to be supported by consumption, driven by the strengthening of real incomes resulting from lower inflation and higher nominal wages. Moreover, exports should pick up alongside a rise in global demand. Finally, monetary policy should exert less of a drag on demand over time.","The labour market remains resilient. The unemployment rate was unchanged, at 6.4 per cent in May, remaining at its lowest level since the start of the euro. Employment, which grew by 0.3 per cent in the first quarter, was supported by a further increase in the labour force, which expanded at the same rate. More jobs are likely to have been created in the second quarter, mainly in the services sector. Firms are gradually reducing their job postings, but from high levels.","National fiscal and structural policies should aim at making the economy more productive and competitive, which would help to raise potential growth and reduce price pressures in the medium term. An effective, speedy and full implementation of the Next Generation EU programme, progress towards capital markets union and the completion of banking union, and a strengthening of the Single Market are key factors that would help foster innovation and increase investment in the green and digital transitions. We welcome the European Commission’s recent guidance calling for EU Member States to strengthen fiscal sustainability and the Eurogroup’s statement on the fiscal stance for the euro area in 2025. Implementing the EU’s revised economic governance framework fully and without delay will help governments bring down budget deficits and debt ratios on a sustained basis.","Annual inflation eased to 2.5 per cent in June, from 2.6 per cent in May. Food prices went up by 2.4 per cent in June – which is 0.2 percentage points less than in May – while energy prices remained essentially flat. Both goods price inflation and services price inflation were unchanged in June, at 0.7% and 4.1% respectively. While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.","Domestic inflation remains high. Wages are still rising at an elevated rate, making up for the past period of high inflation. Higher nominal wages, alongside weak productivity, have added to unit labour cost growth, although it decelerated somewhat in the first quarter of this year. Owing to the staggered nature of wage adjustments and the large contribution of one-off payments, growth in labour costs will likely remain elevated over the near term. At the same time, recent data on compensation per employee have been in line with expectations and the latest survey indicators signal that wage growth will moderate over the course of next year. Moreover, profits contracted in the first quarter, helping to offset the inflationary effects of higher unit labour costs, and survey evidence suggests that profits should continue to be dampened in the near term.","Inflation is expected to fluctuate around current levels for the rest of the year, partly owing to energy-related base effects. It is then expected to decline towards our target over the second half of next year, owing to weaker growth in labour costs, the effects of our restrictive monetary policy and the fading impact of the past inflation surge. Measures of longer-term inflation expectations have remained broadly stable, with most standing at around 2 per cent.","The risks to economic growth are tilted to the downside. A weaker world economy or an escalation in trade tensions between major economies would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the effects of monetary policy turn out stronger than expected. Growth could be higher if inflation comes down more quickly than expected and rising confidence and real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Inflation could turn out higher than anticipated if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","The policy rate cut in June has been transmitted smoothly to money market interest rates, while broader financial conditions have been somewhat volatile. Financing costs remain restrictive as our previous policy rate increases continue to work their way through the transmission chain. The average interest rate on new loans to firms edged down to 5.1 per cent in May, while mortgage rates remained unchanged at 3.8 per cent.","Credit standards for loans remain tight. According to our latest bank lending survey, standards for lending to firms tightened slightly in the second quarter, while standards for mortgages eased moderately. Firms’ demand for loans fell slightly, while households’ demand for mortgages rose for the first time since early 2022.","Overall, credit dynamics remain weak. Bank lending to firms and households grew at an annual rate of 0.3 per cent in May, only marginally up from the previous month. The annual growth in broad money – as measured by M3 – rose to 1.6 per cent in May, from 1.3 per cent in April.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 12 September 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the deposit facility rate – the rate through which we steer the monetary policy stance – by 25 basis points. Based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction.","Recent inflation data have come in broadly as expected, and the latest ECB staff projections confirm the previous inflation outlook. Staff see headline inflation averaging 2.5 per cent in 2024, 2.2 per cent in 2025 and 1.9 per cent in 2026, as in the June projections. Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline towards our target over the second half of next year. For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, staff continue to expect a rapid decline in core inflation, from 2.9 per cent this year to 2.3 per cent in 2025 and 2.0 per cent in 2026.","Domestic inflation remains high as wages are still rising at an elevated pace. However, labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation. Financing conditions remain restrictive, and economic activity is still subdued, reflecting weak private consumption and investment. Staff project that the economy will grow by 0.8 per cent in 2024, rising to 1.3 per cent in 2025 and 1.5 per cent in 2026. This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website. As announced on 13 March 2024, some changes to the operational framework for implementing monetary policy will take effect from 18 September. In particular, the spread between the interest rate on the main refinancing operations and the deposit facility rate will be set at 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations will remain unchanged at 25 basis points.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.2 per cent in the second quarter, after 0.3 per cent in the first quarter, falling short of the latest staff projections. Growth stemmed mainly from net exports and government spending. Private domestic demand weakened, as households consumed less, firms cut down business investment and housing investment dropped. While services supported growth, industry and construction contributed negatively. According to survey indicators, the recovery is continuing to face some headwinds.","We expect the recovery to strengthen over time, as rising real incomes allow households to consume more. The gradually fading effects of restrictive monetary policy should support consumption and investment. Exports should also continue contributing to the recovery as global demand rises.","The labour market remains resilient. The unemployment rate was broadly unchanged in July, at 6.4 per cent. At the same time, employment growth slowed to 0.2 per cent in the second quarter, from 0.3 per cent in the first. Recent survey indicators point to a further moderation in demand for labour, and the job vacancy rate has fallen closer to pre-pandemic levels.","Fiscal and structural policies should be aimed at making the economy more productive and competitive, which would help to raise potential growth and reduce price pressures in the medium term. Mario Draghi's report on the future of European competitiveness and Enrico Letta’s report on empowering the Single Market stress the urgent need for reform and provide concrete proposals to make this happen. Implementing the EU’s revised economic governance framework fully, transparently and without delay will help governments bring down budget deficits and debt ratios on a sustained basis. Governments should now make a strong start in this direction in their medium-term plans for fiscal and structural policies.","According to Eurostat’s flash estimate, annual inflation dropped to 2.2 per cent in August, from 2.6 per cent in July. Energy prices fell at an annual rate of 3.0 per cent, after an increase of 1.2 per cent in the previous month. Food price inflation went up slightly, to 2.4 per cent in August. Goods inflation and services inflation moved in opposite directions. Goods inflation declined to 0.4 per cent, from 0.7 per cent in July, while services inflation rose, to 4.2 per cent from 4.0 per cent.","Most measures of underlying inflation were broadly unchanged in July. Domestic inflation edged down only slightly, to 4.4 per cent from 4.5 per cent in June, with strong price pressures coming especially from wages. Negotiated wage growth will remain high and volatile over the remainder of the year, given the significant role of one-off payments in some countries and the staggered nature of wage adjustments. At the same time, the overall growth in labour costs is moderating. The growth in compensation per employee fell further to 4.3 per cent in the second quarter, the fourth consecutive decline, and ECB staff project it to slow markedly again next year. Despite weak productivity, unit labour costs grew less strongly in the second quarter, by 4.6 per cent, after 5.2 per cent in the first quarter. Staff expect unit labour cost growth to continue declining over the projection horizon owing to lower wage growth and a recovery in productivity. Finally, profits are continuing to partially offset the inflationary effects of higher labour costs.","The disinflation process should be supported by receding labour cost pressures and the past monetary policy tightening gradually feeding through to consumer prices. Most measures of longer-term inflation expectations stand at around 2 per cent, and the market-based measures have fallen closer to that level since our July meeting.","The risks to economic growth remain tilted to the downside. Lower demand for euro area exports, owing for instance to a weaker world economy or an escalation in trade tensions between major economies, would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the lagged effects of monetary policy tightening turn out stronger than expected. Growth could be higher if inflation comes down more quickly than expected and rising confidence and real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected.","Inflation could turn out higher than anticipated if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","Market interest rates have declined markedly since our July meeting, mostly owing to a weaker outlook for global growth and reduced concerns about inflation pressures. Tensions in global markets over the summer led to a temporary tightening of financial conditions in the riskier market segments.","Overall, financing costs remain restrictive as our past policy rate increases continue to work their way through the transmission chain. The average interest rates on new loans to firms and on new mortgages stayed high in July, at 5.1 and 3.8 per cent respectively.","Credit growth remains sluggish amid weak demand. Bank lending to firms grew at an annual rate of 0.6 per cent in July, down slightly from June, and growth in loans to households edged up to 0.5 per cent. Broad money – as measured by M3 – grew by 2.3 per cent in July, the same rate as in June.","The Governing Council today decided to lower the deposit facility rate by 25 basis points. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Ljubljana, 17 October 2024","Good afternoon, the Vice-President and I welcome you to our press conference. I would like to thank Governor Vasle for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive.","Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.","We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The incoming information suggests that economic activity has been somewhat weaker than expected. While industrial production has been particularly volatile over the summer months, surveys indicate that manufacturing has continued to contract. For services, surveys show an uptick in August, likely supported by a strong summer tourism season, but the latest data point to more sluggish growth. Businesses are expanding their investment only slowly, while housing investment continues to fall. Exports have weakened, especially for goods.","Although incomes rose in the second quarter, households consumed less, contrary to expectations. The saving rate stood at 15.7 per cent in the second quarter, well above the pre-pandemic average of 12.9 per cent. At the same time, recent survey evidence points to a gradual recovery in household spending.","The labour market remains resilient. The unemployment rate stayed at its historical low of 6.4 per cent in August. However, surveys point to slowing employment growth and a further moderation in the demand for labour.","We expect the economy to strengthen over time, as rising real incomes allow households to consume more. The gradually fading effects of restrictive monetary policy should support consumption and investment. Exports should contribute to the recovery as global demand rises.","Fiscal and structural policies should be aimed at making the economy more productive, competitive and resilient. That would help to raise potential growth and reduce price pressures in the medium term. To this end, it is crucial to swiftly follow up, with concrete and ambitious structural policies, on Mario Draghi's proposals for enhancing European competitiveness and Enrico Letta’s proposals for empowering the Single Market. Implementing the EU’s revised economic governance framework fully, transparently and without delay will help governments bring down budget deficits and debt ratios on a sustained basis. Governments should now make a strong start in this direction in their medium-term plans for fiscal and structural policies.","Annual inflation fell further to 1.7 per cent in September, its lowest level since April 2021. Energy prices dropped sharply, at an annual rate of -6.1 per cent. Food price inflation went up slightly, to 2.4 per cent. Goods inflation remained subdued, at 0.4 per cent, while services inflation edged down to 3.9 per cent.","Most measures of underlying inflation either declined or were unchanged. Domestic inflation is still elevated, as wage pressures in the euro area remain strong. Negotiated wage growth will remain high and volatile for the rest of the year, given the significant role of one-off payments and the staggered nature of wage adjustments.","Inflation is expected to rise in the coming months, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline to target in the course of next year. The disinflation process should be supported by easing labour cost pressures and the past monetary policy tightening gradually feeding through to consumer prices. Most measures of longer-term inflation expectations stand at around 2 per cent.","The risks to economic growth remain tilted to the downside. Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by sources of geopolitical risk, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which could also disrupt energy supplies and global trade. Lower demand for euro area exports due, for instance, to a weaker world economy or an escalation in trade tensions between major economies would further weigh on euro area growth. Growth could also be lower if the lagged effects of monetary policy tightening turn out stronger than expected. Growth could be higher if the world economy grows more strongly than expected or if easier financing conditions and declining inflation lead to a faster rebound in consumption and investment.","Inflation could turn out higher than anticipated if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation may surprise on the downside if low confidence and concerns about geopolitical events prevent consumption and investment from recovering as fast as expected, monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly.","Shorter-term market interest rates have declined since our September meeting, owing mainly to weaker news on the euro area economy and the further fall in inflation. While financing conditions remain restrictive, the average interest rates on new loans to firms and on new mortgages were down slightly in August, to 5.0 per cent and 3.7 per cent respectively.","Credit standards for business loans were unchanged in the third quarter, as reported in our latest bank lending survey, after more than two years of progressive tightening. Moreover, demand for loans by firms rose for the first time in two years. Overall lending to firms continues to be subdued, growing at an annual rate of 0.8 per cent in August.","Credit standards for mortgages eased for the third quarter in a row, owing especially to greater competition among banks. Lower interest rates and better housing market prospects led to a strong increase in the demand for mortgages. In line with this, mortgage lending picked up slightly, growing at an annual rate of 0.6 per cent.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 12 December 2024","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.","The disinflation process is well on track. Staff see headline inflation averaging 2.4 per cent in 2024, 2.1 per cent in 2025, 1.9 per cent in 2026 and 2.1 per cent in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9 per cent in 2024, 2.3 per cent in 2025 and 1.9 per cent in both 2026 and 2027.","Most measures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis. Domestic inflation has edged down but remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay.","Financing conditions are easing, as our recent interest rate cuts gradually make new borrowing less expensive for firms and households. But they continue to be tight because our monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit.","Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter. Staff see the economy growing by 0.7 per cent in 2024, 1.1 per cent in 2025, 1.4 per cent in 2026 and 1.3 per cent in 2027. The projected recovery rests mainly on rising real incomes – which should allow households to consume more – and firms increasing investment. Over time, the gradually fading effects of restrictive monetary policy should support a pick-up in domestic demand.","We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.4 per cent in the third quarter, exceeding expectations. Growth was driven mainly by an increase in consumption, partly reflecting one-off factors that boosted tourism over the summer, and by firms building up inventories. But the latest information suggests it is losing momentum. Surveys indicate that manufacturing is still contracting and growth in services is slowing. Firms are holding back their investment spending in the face of weak demand and a highly uncertain outlook. Exports are also weak, with some European industries finding it challenging to remain competitive.","The labour market remains resilient. Employment grew by 0.2 per cent in the third quarter, again by more than expected. The unemployment rate remained at its historical low of 6.3 per cent in October. Meanwhile, demand for labour continues to weaken. The job vacancy rate declined to 2.5% in the third quarter, 0.8 percentage points below its peak, and surveys also point to fewer jobs being created in the current quarter.","The economy should strengthen over time, although more slowly than previously expected. The rise in real wages should strengthen household spending. More affordable credit should boost consumption and investment. Provided trade tensions do not escalate, exports should support the recovery as global demand rises.","Fiscal and structural policies should make the economy more productive, competitive and resilient. It is crucial to swiftly follow up, with concrete and ambitious structural policies, on Mario Draghi’s proposals for enhancing European competitiveness and Enrico Letta’s proposals for empowering the Single Market. We welcome the European Commission’s assessment of governments’ medium-term plans for fiscal and structural policies, as part of the EU’s revised economic governance framework. Governments should now focus on implementing their commitments under this framework fully and without delay. This will help bring down budget deficits and debt ratios on a sustained basis, while prioritising growth-enhancing reforms and investment.","Annual inflation increased to 2.3 per cent in November according to Eurostat’s flash estimate, from 2.0 per cent in October. The increase was expected and primarily reflected an energy-related upward base effect. Food price inflation edged down to 2.8 per cent and services inflation to 3.9 per cent. Goods inflation went up to 0.7 per cent.","Domestic inflation, which closely tracks services inflation, again eased somewhat in October. But at 4.2%, it remains high. This reflects strong wage pressures and the fact that some services prices are still adjusting with a delay to the past inflation surge. That said, underlying inflation is overall developing in line with a sustained return of inflation to target.","The increase in compensation per employee moderated to 4.4 per cent in the third quarter from 4.7 per cent in the second. Amid stable productivity, this contributed to slower growth in unit labour costs. Staff expect labour costs to increase more slowly over the projection horizon as a result of lower wage growth and higher productivity growth. Moreover, profits should continue to partially offset the effects of higher labour costs on prices, especially in the near term.","We expect inflation to fluctuate around its current level in the near term, as previous sharp falls in energy prices continue to drop out of the annual rates. It should then settle sustainably at around the two per cent medium-term target. Easing labour cost pressures and the continuing impact of our past monetary policy tightening on consumer prices should help this process. Most measures of longer-term inflation expectations stand at around 2 per cent, and market-based indicators of medium to longer-term inflation compensation have decreased measurably since the Governing Council’s October meeting.","The risks to economic growth remain tilted to the downside. The risk of greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy. Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by geopolitical risks, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which could disrupt energy supplies and global trade. Growth could also be lower if the lagged effects of monetary policy tightening last longer than expected. It could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster.","Inflation could turn out higher if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected. By contrast, inflation may surprise on the downside if low confidence and concerns about geopolitical events prevent consumption and investment from recovering as fast as expected, if monetary policy dampens demand more than expected, or if the economic environment in the rest of the world worsens unexpectedly. Greater friction in global trade would make the euro area inflation outlook more uncertain.","Market interest rates in the euro area have declined further since our October meeting, reflecting the perceived worsening of the economic outlook. Although financing conditions remain restrictive, our interest rate cuts are gradually making it less expensive for firms and households to borrow.","The average interest rate on new loans to firms was 4.7 per cent in October, more than half a percentage point below its peak a year earlier. The cost of issuing market-based debt has fallen by more than a percentage point since its peak. The average rate on new mortgages, at 3.6 per cent in October, is about half a percentage point lower than at its highest point in 2023, even though the average rate on the outstanding stock of mortgages is still set to rise.","Bank lending to firms has gradually picked up from low levels, and increased by 1.2 per cent in October compared with a year earlier. Debt securities issued by firms were up 3.1% in annual terms, which was similar to the increase in the previous few months. Mortgage lending continued to rise gradually in October, with an annual growth rate of 0.8 per cent.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks remain resilient and there are few signs of financial market stress. Financial stability risks nonetheless remain elevated. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 30 January 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.","The disinflation process is well on track. Inflation has continued to develop broadly in line with the staff projections and is set to return to our two per cent medium-term target in the course of this year. Most measures of underlying inflation suggest that inflation will settle at around our target on a sustained basis. Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.","Our recent interest rate cuts are gradually making new borrowing less expensive for firms and households. At the same time, financing conditions continue to be tight, also because our monetary policy remains restrictive and past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates. The economy is still facing headwinds but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.","We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy stagnated in the fourth quarter, according to Eurostat’s preliminary flash estimate. It is set to remain weak in the near term. Surveys indicate that manufacturing continues to contract while services activity is expanding. Consumer confidence is fragile, and households have not yet drawn sufficient encouragement from rising real incomes to significantly increase their spending.","Nevertheless, the conditions for a recovery remain in place. While the labour market has softened over recent months it continues to be robust, with the unemployment rate staying low, at 6.3 per cent in December. A solid job market and higher incomes should strengthen consumer confidence and allow spending to rise. More affordable credit should also boost consumption and investment over time. Provided trade tensions do not escalate, exports should support the recovery as global demand rises.","Fiscal and structural policies should make the economy more productive, competitive and resilient. We welcome the European Commission’s Competitiveness Compass, which provides a concrete roadmap for action. It is crucial to follow up, with further concrete and ambitious structural policies, on Mario Draghi’s proposals for enhancing European competitiveness and on Enrico Letta’s proposals for empowering the Single Market. Governments should implement their commitments under the EU’s economic governance framework fully and without delay. This will help bring down budget deficits and debt ratios on a sustained basis, while prioritising growth-enhancing reforms and investment.","Annual inflation increased to 2.4 per cent in December, up from 2.2 per cent in November. As in the previous two months, the increase was expected and primarily reflected past sharp drops in energy prices falling out of the calculation. Along with a month-on-month increase in December, this led energy prices slightly higher on an annual basis, after four consecutive declines. Food price inflation edged down to 2.6 per cent and goods inflation to 0.5 per cent. Services inflation edged up to 4.0 per cent.","Most underlying inflation indicators have been developing in line with a sustained return of inflation to our medium-term target. Domestic inflation, which closely tracks services inflation, has remained high, as wages and some services prices are still adjusting to the past inflation surge with a substantial delay. At the same time, recent signals point to continued moderation in wage pressures and to the buffering role of profits.","We expect inflation to fluctuate around its current level in the near term. It should then settle sustainably at around the two per cent medium-term target. Easing labour cost pressures and the continuing impact of our past monetary policy tightening on consumer prices should help this process. While market-based indicators of inflation compensation have largely reversed the declines observed in the autumn, most measures of longer-term inflation expectations continue to stand at around 2 per cent.","The risks to economic growth remain tilted to the downside. Greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy. Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by geopolitical risks, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which could disrupt energy supplies and further weigh on global trade. Growth could also be lower if the lagged effects of monetary policy tightening last longer than expected. It could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster.","Inflation could turn out higher if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected. By contrast, inflation may surprise on the downside if low confidence and concerns about geopolitical events prevent consumption and investment from recovering as fast as expected, if monetary policy dampens demand by more than expected, or if the economic environment in the rest of the world worsens unexpectedly. Greater friction in global trade would make the euro area inflation outlook more uncertain.","Market interest rates in the euro area have risen since our December meeting, partly mirroring higher rates in global financial markets. While financing conditions remain tight, our interest rate cuts are gradually making it less expensive for firms and households to borrow.","The average interest rate on new loans to firms declined to 4.5 per cent in November, while the cost of issuing market-based debt remained at 3.6 per cent. The average rate on new mortgages edged down to 3.5 per cent.","Growth in bank lending to firms rose to 1.5 per cent in December, up from 1.0 per cent in November, amid a strong monthly flow. Growth in debt securities issued by firms moderated to 3.2 per cent in annual terms. Mortgage lending continued to rise gradually but remained muted overall, with an annual growth rate of 1.1 per cent.","Credit standards for business loans tightened again in the fourth quarter of 2024, having broadly stabilised over the previous four quarters, as reported in our latest bank lending survey. The renewed tightening mainly reflected banks becoming more concerned about the risks faced by their customers and less willing to take on risks themselves. Demand for loans by firms increased slightly in the fourth quarter but remained weak overall. Credit standards for mortgages were broadly unchanged, after three quarters of easing, while the demand for mortgages again increased strongly, mainly because of more attractive interest rates.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 6 March 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.","The disinflation process is well on track. Inflation has continued to develop broadly as staff expected, and the latest projections closely align with the previous inflation outlook. Staff now see headline inflation averaging 2.3 per cent in 2025, 1.9 per cent in 2026 and 2.0 per cent in 2027. The upward revision in headline inflation for 2025 reflects stronger energy price dynamics. For inflation excluding energy and food, staff project an average of 2.2 per cent in 2025, 2.0 per cent in 2026 and 1.9 per cent in 2027.","Most measures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis. Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.","Our monetary policy is becoming meaningfully less restrictive, as our interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up. At the same time, a headwind to the easing of financing conditions comes from past interest rate hikes still transmitting to the stock of credit, and lending remains subdued overall. The economy faces continued challenges and staff have again marked down their growth projections – to 0.9 per cent for 2025, 1.2 per cent for 2026 and 1.3 per cent for 2027. The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty. Rising real incomes and the gradually fading effects of our past rate hikes remain the key drivers underpinning the expected pick-up in demand over time.","We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of rising uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy likely grew modestly in the fourth quarter of 2024. The first two months of 2025 saw a continuation of many of last year’s patterns. Manufacturing is still a drag on growth even if survey indicators are improving. High uncertainty, both at home and abroad, is holding back investment and competitiveness challenges are weighing on exports. At the same time, services are resilient. Moreover, rising household incomes and the robust labour market are supporting a gradual pick-up in consumption, although consumer confidence is still fragile and saving rates are high.","The unemployment rate stayed at its historical low of 6.2 per cent in January, and employment is estimated to have grown by 0.1 per cent in the last quarter of 2024. However, demand for labour has moderated, and recent survey data suggest that employment growth was subdued in the first two months of 2025.","Uncertainty has increased and is likely to weigh on investment and exports by more than previously expected. But growth should be supported by higher incomes and lower borrowing costs. According to the staff projections, exports should also be supported by rising global demand so long as trade tensions do not escalate further.","Fiscal and structural policies should make the economy more productive, competitive and resilient. The European Commission’s Competitiveness Compass provides a concrete roadmap for action and its proposals should be swiftly adopted. Governments should ensure sustainable public finances in line with the EU’s economic governance framework and prioritise essential growth-enhancing structural reforms and strategic investment.","Annual inflation stood at 2.4 per cent in February, after 2.5 per cent in January and 2.4 per cent in December, according to Eurostat’s flash estimate. Energy price inflation slowed to 0.2 per cent, following a strong increase to 1.9 per cent in January, from 0.1 per cent in December. By contrast, food price inflation rose to 2.7 per cent, from 2.3 per cent in January and 2.6 per cent in December. Goods inflation ticked up to 0.6 per cent, while services inflation eased to 3.7 per cent, from 3.9 per cent in January and 4.0 per cent in December.","Most indicators of underlying inflation are pointing to a sustained return of inflation to our two per cent medium-term target. Domestic inflation, which closely tracks services inflation, declined in January. But it remains high, as wages and some services prices are still adjusting to the past inflation surge with a substantial delay. At the same time, recent wage negotiations point to a continued moderation in labour cost pressures.","The assumption of higher energy price inflation led staff to revise up the headline inflation projection for 2025. At the same time, staff expect core inflation to continue slowing, as labour cost pressures ease further and the past monetary policy tightening continues to weigh on prices. Most measures of longer-term inflation expectations continue to stand at around 2 per cent. All of these factors will support the sustainable return of inflation to our target.","The risks to economic growth remain tilted to the downside. An escalation in trade tensions would lower euro area growth by dampening exports and weakening the global economy. Ongoing uncertainty about global trade policies could drag investment down. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty as well. Growth could be lower if the lagged effects of monetary policy tightening last longer than expected. At the same time, growth could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster. An increase in defence and infrastructure spending could also add to growth.","Increasing friction in global trade is adding more uncertainty to the outlook for euro area inflation. A general escalation in trade tensions could see the euro depreciate and import costs rise, which would put upward pressure on inflation. At the same time, lower demand for euro area exports as a result of higher tariffs and a re-routing of exports into the euro area from countries with overcapacity would put downward pressure on inflation. Geopolitical tensions create two-sided inflation risks as regards energy markets, consumer confidence and business investment. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected. Inflation could turn out higher if wages or profits increase by more than expected. A boost in defence and infrastructure spending could also raise inflation through its effect on aggregate demand. But inflation might surprise on the downside if monetary policy dampens demand by more than expected.","Market interest rates in the euro area decreased after our January meeting but have risen over recent days in response to a revised outlook for fiscal policy. Our interest rate cuts are gradually making it less expensive for firms and households to borrow and loan growth is picking up. At the same time, a headwind to the easing of financing conditions comes from past interest rate hikes still transmitting to the stock of credit, and lending remains subdued overall.","The average interest rate on new loans to firms declined to 4.2 per cent in January, from 4.4 per cent in December. By contrast, firms’ cost of issuing market-based debt rose to 3.7 per cent, 0.2 percentage points above its December level. Over the same period, the average interest rate on new mortgages declined to 3.3 per cent, from 3.4 per cent.","Growth in bank lending to firms rose to 2.0 per cent in January, up from 1.7 per cent in December, on the back of a moderate monthly flow of new loans. Growth in debt securities issued by firms rose to 3.4 per cent in annual terms. Mortgage lending continued to rise gradually but remained muted overall, with an annual growth rate of 1.3 per cent.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of rising uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 17 April 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.","The disinflation process is well on track. Inflation has continued to develop as staff expected, with both headline and core inflation declining in March. Services inflation has also eased markedly over recent months. Most measures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is moderating, and profits are partially buffering the impact of still elevated wage growth on inflation. The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions. Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions. These factors may further weigh on the economic outlook for the euro area.","We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economic outlook is clouded by exceptional uncertainty. Euro area exporters face new barriers to trade, although their scope remains unclear. Disruptions to international commerce, financial market tensions and geopolitical uncertainty are weighing on business investment. As consumers become more cautious about the future, they may hold back from spending as well.","At the same time, the euro area economy has been building up some resilience against the global shocks. The economy is likely to have grown in the first quarter of the year, and manufacturing has shown signs of stabilisation. Unemployment fell to 6.1 per cent in February, its lowest level since the launch of the euro. A strong labour market, higher real incomes and the impact of our monetary policy should underpin spending. The important policy initiatives that have been launched at the national and EU levels to increase defence spending and infrastructure investment can be expected to bolster manufacturing, which is also reflected in recent surveys.","In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission’s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, should be swiftly adopted. This includes completing the savings and investment union, following a clear and ambitious timetable, which should help savers benefit from more opportunities to invest and improve firms’ access to finance, especially risk capital. It is also important to rapidly establish the legislative framework to prepare the ground for the potential introduction of a digital euro. Governments should ensure sustainable public finances in line with the EU’s economic governance framework and prioritise essential growth-enhancing structural reforms and strategic investment.","Annual inflation edged down to 2.2 per cent in March. Energy prices fell by 1.0 per cent, after a slight rise in February, while food price inflation rose to 2.9 per cent in March, from 2.7 per cent in February. Goods inflation was stable at 0.6 per cent. Services inflation fell again in March, to 3.5 per cent, and it now stands half a percentage point below the rate recorded at the end of last year.","Most indicators of underlying inflation are pointing to a sustained return of inflation to our two per cent medium-term target. Domestic inflation has declined since the end of 2024. Wages are gradually moderating. In the last quarter of 2024 annual growth in compensation per employee stood at 4.1 per cent, down from 4.5 per cent in the previous quarter. Rising productivity also meant that unit labour costs grew more slowly. The ECB’s wage tracker and information from our contacts with companies point to a decline in wage growth in 2025, as also indicated in the March staff projections. Unit profits fell at an annual rate of 1.1 per cent at the end of last year, contributing to lower domestic inflation.","Most measures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the sustainable return of inflation to our target.","Downside risks to economic growth have increased. The major escalation in global trade tensions and associated uncertainties will likely lower euro area growth by dampening exports, and it may drag down investment and consumption. Deteriorating financial market sentiment could lead to tighter financing conditions, increase risk aversion and make firms and households less willing to invest and consume. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, also remain a major source of uncertainty. At the same time, an increase in defence and infrastructure spending would add to growth.","Increasing global trade disruptions are adding more uncertainty to the outlook for euro area inflation. Falling global energy prices and appreciation of the euro could put further downward pressure on inflation. This could be reinforced by lower demand for euro area exports owing to higher tariffs, and a re-routing of exports into the euro area from countries with overcapacity. Adverse financial market reactions to the trade tensions could weigh on domestic demand and thereby also lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pushing up import prices. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.","Risk-free interest rates have declined in response to the escalating trade tensions. Equity prices have fallen amid high volatility and corporate bond spreads have widened around the globe. The euro has strengthened over recent weeks as investor sentiment has proven more resilient towards the euro area than towards other economies.","The latest official statistics on corporate borrowing, which predated these market tensions, continued to indicate that our interest rate cuts had made it less expensive for firms to borrow. The average interest rate on new loans to firms declined to 4.1 per cent in February, from 4.3 per cent in January. Firms’ cost of issuing market-based debt declined to 3.5 per cent in February, but there has been some upward pressure more recently. Moreover, growth in lending to firms picked up again in February, to 2.2 per cent, while debt securities issuance by firms grew at an unchanged rate of 3.2 per cent.","At the same time, credit standards for business loans tightened slightly again in the first quarter of 2025, as reported in our latest bank lending survey for the euro area. As in the previous quarter, this was mainly because banks are becoming more concerned about the economic risks faced by their customers. Demand for loans to firms decreased slightly in the first quarter, after a modest recovery in previous quarters.","The average rate on new mortgages, at 3.3 per cent in February, increased on the back of earlier rises in longer-term market rates. Mortgage lending continued to strengthen in February, albeit at a still subdued annual rate of 1.5 per cent, as banks eased their credit standards and demand for loans to households continued to increase strongly.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 5 June 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.","Inflation is currently at around our two per cent medium-term target. In the baseline of the new Eurosystem staff projections, headline inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged since March.","Staff see real GDP growth averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a stronger than expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term. Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks.","In the context of high uncertainty, staff also assessed some of the mechanisms by which different trade policies could affect growth and inflation under some alternative illustrative scenarios. These scenarios will be published with the staff projections on our website. Under this scenario analysis, a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade tensions were resolved with a benign outcome, growth and, to a lesser extent, inflation would be higher than in the baseline projections.","Most measures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation. The concerns that increased uncertainty and a volatile market response to the trade tensions in April would have a tightening impact on financing conditions have eased.","We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat’s flash estimate. Unemployment, at 6.2 per cent in April, is at its lowest level since the launch of the euro, and employment grew by 0.3 per cent in the first quarter of the year, according to the flash estimate.","In line with the staff projections, survey data point overall to some weaker prospects in the near term. While manufacturing has strengthened, partly because trade has been brought forward in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a stronger euro are expected to make it harder for firms to export. High uncertainty is expected to weigh on investment.","At the same time, several factors are keeping the economy resilient and should support growth over the medium term. A strong labour market, rising real incomes, robust private sector balance sheets and easier financing conditions, in part because of our past interest rate cuts, should all help consumers and firms withstand the fallout from a volatile global environment. Recently announced measures to step up defence and infrastructure investment should also bolster growth.","In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission’s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, should be swiftly adopted. This includes completing the savings and investment union, following a clear and ambitious timetable. It is also important to rapidly establish the legislative framework to prepare the ground for the potential introduction of a digital euro. Governments should ensure sustainable public finances in line with the EU’s economic governance framework, while prioritising essential growth-enhancing structural reforms and strategic investment.","Annual inflation declined to 1.9 per cent in May, from 2.2 per cent in April, according to Eurostat’s flash estimate. Energy price inflation remained at -3.6 per cent. Food price inflation rose to 3.3 per cent, from 3.0 per cent the month before. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had jumped in April mainly because prices for travel services around the Easter holidays went up by more than expected.","Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are gradually moderating, as indicated by incoming data on negotiated wages and available country data on compensation per employee. The ECB’s wage tracker points to a further easing of negotiated wage growth in 2025, while the staff projections see wage growth falling to below 3 per cent in 2026 and 2027. While lower energy prices and a stronger euro are putting downward pressure on inflation in the near term, inflation is expected to return to target in 2027.","Short-term consumer inflation expectations edged up in April, likely reflecting news about trade tensions. But most measures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the stabilisation of inflation around our target.","Risks to economic growth remain tilted to the downside. A further escalation in global trade tensions and associated uncertainties could lower euro area growth by dampening exports and dragging down investment and consumption. A deterioration in financial market sentiment could lead to tighter financing conditions and greater risk aversion, and make firms and households less willing to invest and consume. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical tensions were resolved swiftly, this could lift sentiment and spur activity. A further increase in defence and infrastructure spending, together with productivity-enhancing reforms, would also add to growth.","The outlook for euro area inflation is more uncertain than usual, as a result of the volatile global trade policy environment. Falling energy prices and a stronger euro could put further downward pressure on inflation. This could be reinforced if higher tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pushing up import prices and adding to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.","Risk-free interest rates have remained broadly unchanged since our last meeting. Equity prices have risen, and corporate bond spreads have narrowed, in response to more positive news about global trade policies and the improvement in global risk sentiment.","Our past interest rate cuts continue to make corporate borrowing less expensive. The average interest rate on new loans to firms declined to 3.8 per cent in April, from 3.9 per cent in March. The cost of issuing market-based debt was unchanged at 3.7 per cent. Bank lending to firms continued to strengthen gradually, growing by an annual rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was subdued. The average interest rate on new mortgages stayed at 3.3 per cent in April, while growth in mortgage lending increased to 1.9 per cent.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. While euro area banks remain resilient, broader financial stability risks remain elevated, in particular owing to highly uncertain and volatile global trade policies. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space.","The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which we steer the monetary policy stance – is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 24 July 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Inflation is currently at our two per cent medium-term target. The incoming information is broadly in line with our previous assessment of the inflation outlook. Domestic price pressures have continued to ease, with wages growing more slowly. Partly reflecting our past interest rate cuts, the economy has so far proven resilient overall in a challenging global environment. At the same time, the environment remains exceptionally uncertain, especially because of trade disputes.","We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","In the first quarter the economy grew more strongly than expected. This was partly because firms frontloaded exports ahead of expected tariff hikes. But growth was also bolstered by stronger private consumption and investment.","Recent surveys point to an overall modest expansion in both the manufacturing and services sectors. At the same time, higher actual and expected tariffs, the stronger euro and persistent geopolitical uncertainty are making firms more hesitant to invest.","The robust labour market, rising real incomes and solid private sector balance sheets continue to support consumption. Unemployment stood at 6.3 per cent in May, close to its lowest level since the introduction of the euro. Easier financing conditions are underpinning domestic demand, including in the housing market. Over time, higher public investment in defence and infrastructure should also support growth.","More than ever, the Governing Council considers it crucial to urgently strengthen the euro area and its economy in the present geopolitical environment. Fiscal and structural policies should make the economy more productive, competitive and resilient. Governments should prioritise growth-enhancing structural reforms and strategic investment, while ensuring sustainable public finances. It is important to complete the savings and investments union and the banking union, following a clear and ambitious timetable, and to rapidly establish the legislative framework for the potential introduction of a digital euro. The Governing Council welcomes the Eurogroup’s commitment to improve the effectiveness, quality and composition of public spending and supports the efforts by European authorities to preserve the mutual benefits of global trade.","Annual inflation stood at 2.0 per cent in June, after 1.9 per cent in May. Energy prices went up in June but are still lower than a year ago. Food price inflation eased slightly to 3.1 per cent. Goods inflation edged down to 0.5 per cent in June, whereas services inflation ticked up to 3.3 per cent, from 3.2 per cent in May.","Indicators of underlying inflation are overall consistent with our two per cent medium-term target. Labour costs have continued to moderate. Year-on-year growth in compensation per employee slowed to 3.8 per cent in the first quarter, down from 4.1 per cent in the previous quarter. Combined with stronger productivity growth, this led to slower growth in unit labour costs. Forward-looking indicators, including the ECB’s wage tracker and surveys on wage expectations of firms, consumers and professional forecasters, point to a further decline in wage growth.","Short-term consumer inflation expectations declined in both May and June, reversing the uptick observed in previous months. Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.","Risks to economic growth remain tilted to the downside. Among the main risks are a further escalation in global trade tensions and associated uncertainties, which could dampen exports and drag down investment and consumption. A deterioration in financial market sentiment could lead to tighter financing conditions and greater risk aversion, and make firms and households less willing to invest and consume. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical tensions were resolved swiftly, this could lift sentiment and spur activity. Higher defence and infrastructure spending, together with productivity-enhancing reforms, would add to growth. An improvement in business confidence would also stimulate private investment.","The outlook for inflation is more uncertain than usual, as a result of the volatile global trade policy environment. A stronger euro could bring inflation down further than expected. Moreover, inflation could turn out to be lower if higher tariffs lead to lower demand for euro area exports and induce countries with overcapacity to reroute their exports to the euro area. Trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices and added to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.","Market interest rates have increased since our last meeting, especially at longer maturities. At the same time, our past interest rate cuts continue to make corporate borrowing less expensive. The average interest rate on new loans to firms declined to 3.7 per cent in May, from 3.8 per cent in April. The cost of issuing market-based debt also came down, falling to 3.6 per cent in May. While the growth rate of loans to firms moderated to 2.5 per cent in May, corporate bond issuance was stronger, growing at a rate of 3.4 per cent in annual terms.","Credit standards for business loans were broadly unchanged in the second quarter, as reported in our latest bank lending survey for the euro area. While banks’ concerns about the economic risks faced by their customers had a tightening impact on credit standards, this was broadly offset by stronger competition among lenders. Meanwhile, firms’ demand for credit increased slightly, benefiting from lower interest rates, but they remained cautious because of global uncertainty and trade tensions.","The average interest rate on new mortgages has barely changed since the start of the year and stood at 3.3 per cent in May. Growth in mortgage lending edged up to 2.0 per cent in May, in the context of a strong increase in demand, while credit standards tightened slightly in the second quarter.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 11 September 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Inflation is currently at around our two per cent medium-term target and our assessment of the inflation outlook is broadly unchanged.","The new ECB staff projections present a picture of inflation similar to that projected in June. They see headline inflation averaging 2.1 per cent in 2025, 1.7 per cent in 2026 and 1.9 per cent in 2027. For inflation excluding energy and food, they expect an average of 2.4 per cent in 2025, 1.9 per cent in 2026 and 1.8 per cent in 2027. The economy is projected to grow by 1.2 per cent in 2025, revised up from the 0.9 per cent expected in June. The growth projection for 2026 is now slightly lower, at 1.0 per cent, while the projection for 2027 is unchanged at 1.3 per cent.","We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.7 per cent in cumulative terms over the first half of the year, on account of the resilience in domestic demand. The quarterly pattern showed stronger growth in the first quarter and weaker growth in the second quarter, partly reflecting an initial frontloading of international trade ahead of expected tariff increases and then a reversal of that effect.","Survey indicators suggest that both manufacturing and services continue to grow, signalling some positive underlying momentum in the economy. Even if demand for labour is softening, the labour market remains a source of strength, with the unemployment rate at 6.2 per cent in July. Over time, this should boost consumer spending, especially if, as foreseen in the staff projections, people save less of their income. Consumer spending and investment should benefit from our past interest rate cuts feeding through to financing conditions. Investment should also be underpinned by substantial government spending on infrastructure and defence.","Higher tariffs, a stronger euro and increased global competition are expected to hold growth back for the rest of the year. However, the effect of these headwinds on growth should fade next year. While recent trade agreements have reduced uncertainty somewhat, the overall impact of the change in the global policy environment will only become clear over time.","The Governing Council considers it crucial to urgently strengthen the euro area and its economy in the present geopolitical environment. Fiscal and structural policies should make the economy more productive, competitive and resilient. One year on from the release of Mario Draghi’s report on the future of European competitiveness, it remains essential to follow up on its recommendations with further concrete action and to accelerate implementation, in line with the European Commission’s roadmap. Governments should prioritise growth-enhancing structural reforms and strategic investment, while ensuring sustainable public finances. It is critical to complete the savings and investments union and the banking union, to an ambitious timetable, and to rapidly establish the legislative framework for the potential introduction of a digital euro.","Annual inflation remains close to our target, edging up to 2.1 per cent in August from 2.0 per cent in July. Energy price inflation was -1.9 per cent, after -2.4 per cent in July, while food price inflation declined to 3.2 per cent from 3.3 per cent. Inflation excluding energy and food stayed constant at 2.3 per cent. Services inflation edged down to 3.1 per cent, from 3.2 per cent in July, while goods inflation was unchanged at 0.8 per cent.","Indicators of underlying inflation remain consistent with our two per cent medium-term target. Year-on-year growth in compensation per employee was 3.9 per cent in the second quarter, down from 4.0 per cent in the previous quarter and 4.8 per cent in the second quarter of last year. Forward-looking indicators, including the ECB’s wage tracker and surveys on wage expectations, suggest that wage growth will moderate further. Along with productivity gains, this will help keep a lid on domestic price pressures, even as profits recover from low levels.","Looking ahead, the staff projections see food inflation dropping from 2.9 per cent in 2025 to 2.3 per cent in 2026 and 2027. Energy price inflation is expected to remain volatile, but rise over the projection horizon, in part because of the start of the EU Emissions Trading System 2 in 2027. Inflation excluding energy and food is expected to fall from 2.4 per cent in 2025 to 1.9 per cent in 2026 and 1.8 per cent in 2027, owing to the stronger euro and declining labour cost pressures.","Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.","Risks to economic growth have become more balanced. While recent trade agreements have reduced uncertainty, a renewed worsening of trade relations could further dampen exports and drag down investment and consumption. A deterioration in financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty. By contrast, higher than expected defence and infrastructure spending, together with productivity-enhancing reforms, would add to growth. An improvement in business confidence could stimulate private investment. Sentiment could also be lifted and activity spurred if geopolitical tensions diminished, or if the remaining trade disputes were resolved faster than expected.","The outlook for inflation remains more uncertain than usual, as a result of the still volatile global trade policy environment. A stronger euro could bring inflation down further than expected. Moreover, inflation could turn out to be lower if higher tariffs lead to lower demand for euro area exports and induce countries with overcapacity to further increase their exports to the euro area. Trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices and added to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.","Since our last meeting short-term market rates have increased, while longer-term rates have remained broadly unchanged. However, our past interest rate cuts continued to lower corporate borrowing costs in July. The average interest rate on new loans to firms moved down to 3.5 per cent in July, from 3.6 per cent in June. The cost of issuing market-based debt was unchanged, at 3.5 per cent. Loans to firms grew by 2.8 per cent, slightly more strongly than in June, while the growth of corporate bond issuance rose to 4.1 per cent from 3.4 per cent. The average interest rate on new mortgages was again unchanged at 3.3 per cent in July, while growth in mortgage lending picked up to 2.4 per cent, from 2.2 per cent.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Florence, 30 October 2025","Good afternoon, the Vice-President and I welcome you to our press conference. I would like to thank Governor Panetta for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Inflation remains close to our two per cent medium-term target and our assessment of the inflation outlook is broadly unchanged. The economy has continued to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and our past interest rate cuts remain important sources of resilience. However, the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions.","We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.2 per cent in the third quarter of the year, according to Eurostat’s preliminary flash estimate published today. The services sector continued to grow, boosted by strong tourism and, especially, by a pick-up in digital services. According to surveys, the pick-up reflects the fact that many firms have stepped up efforts to modernise their IT infrastructures and integrate artificial intelligence into their operations. Meanwhile, manufacturing was held back by higher tariffs, still-heightened uncertainty and a stronger euro.","The divergence between domestic and external demand is likely to persist in the near term. The economy should benefit from consumers spending more as real incomes rise. Unemployment, at 6.3 per cent in September, remains close to its historical low, even though demand for labour has cooled. Households continue to save an unusually large proportion of their incomes, which should give them greater margin to increase spending further. Substantial government expenditure on infrastructure and defence, as well as our past interest rate cuts, should underpin investment.","By contrast, the global environment is likely to remain a drag. Goods exports declined from March to August, reversing the earlier frontloading of international trade ahead of recent tariff increases. New export orders in manufacturing point to further declines. The full impact of higher tariffs on euro area exports and manufacturing investment will only become visible over time.","The Governing Council stresses the urgent need to strengthen the euro area and its economy in the present geopolitical environment, and we welcome EU leaders reaffirming this ambition at last week’s Euro Summit. Fiscal and structural policies should boost productivity, competitiveness and resilience. It is essential to implement the European Commission’s competitiveness roadmap swiftly. Governments should prioritise growth-enhancing structural reforms and strategic investment, while ensuring sustainable public finances. It is also vital to foster further capital market integration by completing the savings and investments union and the banking union to an ambitious timetable, and to rapidly adopt the regulation on the establishment of a digital euro.","The Governing Council is committed to making retail and wholesale central bank money fit for the digital age. In this vein, the Governing Council today decided to move to the next stage of the digital euro project. This will ensure technical readiness for potential issuance and support Europe’s digital sovereignty once the legislation has been adopted. The details of this decision are available in a separate press release.","Annual inflation increased to 2.2 per cent in September, from 2.0 per cent in August. This was mainly because energy prices fell by less than before. Energy price inflation was -0.4 per cent in September, up from -2.0 per cent in August. Meanwhile, food price inflation eased to 3.0 per cent in September, from 3.2 per cent in August. Inflation excluding energy and food rose to 2.4 per cent, from 2.3 per cent in August, as services inflation ticked up from 3.1 per cent to 3.2 per cent, while goods inflation was again unchanged at 0.8 per cent.","Indicators of underlying inflation remain consistent with our two per cent medium-term target. While firms’ profits are recovering, labour costs are set to moderate further owing to rising productivity and an easing in wage growth. Forward-looking indicators, such as the ECB’s wage tracker and surveys on wage expectations, point to slower wage growth over the remainder of the year and the first half of 2026.","Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.","The EU-US trade deal reached over the summer, the recently announced ceasefire in the Middle East and today’s announcement of progress in the US-China trade negotiations have mitigated some of the downside risks to economic growth. At the same time, the still volatile global trade environment could disrupt supply chains, further dampen exports, and weigh on consumption and investment. A deterioration in financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth. Geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, higher than expected defence and infrastructure spending, together with productivity-enhancing reforms, would add to growth. An improvement in business confidence could stimulate private investment. Sentiment could also be lifted and activity spurred if the remaining geopolitical tensions diminished, or if the remaining trade disputes were resolved faster than expected.","The outlook for inflation continues to be more uncertain than usual on account of the still volatile global trade policy environment. A stronger euro could bring inflation down further than expected. Moreover, inflation could turn out to be lower if higher tariffs lead to lower demand for euro area exports and induce countries with overcapacity to further increase their exports to the euro area. An increase in volatility and risk aversion in financial markets could weigh on domestic demand and thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices, curtailed the supply of critical raw materials and added to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate and nature crisis more broadly, could drive up food prices by more than expected.","Since our last meeting, market rates have remained broadly unchanged. Our past interest rate cuts have continued to reduce bank lending rates for firms, which averaged 3.5 per cent in August. Meanwhile, the cost of issuing market-based debt remained at 3.5 per cent in August, as the longer-term yields on which such debt is priced have been relatively stable.","The annual growth rate of bank lending to firms edged down to 2.9 per cent in September, from 3.0 per cent in August. At the same time, corporate bond issuance slowed to 3.3 per cent on a yearly basis. According to our latest bank lending survey for the euro area, credit standards for business loans tightened moderately in the third quarter, as banks became more concerned about the risks faced by their customers. Firms’ demand for credit picked up slightly.","The average interest rate on new mortgages has barely changed since the start of the year and stood at 3.3 per cent in August. Growth in mortgage lending ticked up to 2.6 per cent in September, from 2.5 per cent in August, on the back of a further increase in demand and unchanged credit standards in the third quarter.","Growth in broad money – as measured by M3 – slowed to 2.8 per cent in September, down from 2.9 per cent in August and an average of 3.8 per cent over the first half of the year.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 18 December 2025","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Our updated assessment reconfirms that inflation should stabilise at our two per cent target in the medium term.","The new Eurosystem staff projections show headline inflation averaging 2.1 per cent in 2025, 1.9 per cent in 2026, 1.8 per cent in 2027 and 2.0 per cent in 2028. For inflation excluding energy and food, staff project an average of 2.4 per cent in 2025, 2.2 per cent in 2026, 1.9 per cent in 2027 and 2.0 per cent in 2028. Inflation has been revised up for 2026, mainly because staff now expect services inflation to decline more slowly. Economic growth is expected to be stronger than in the September projections, driven especially by domestic demand. Growth has been revised up to 1.4 per cent in 2025, 1.2 per cent in 2026 and 1.4 per cent in 2027 and is expected to remain at 1.4 per cent in 2028.","We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy has been resilient. It grew by 0.3 per cent in the third quarter, mainly reflecting stronger consumption and investment. Exports also increased, with a significant contribution from chemicals. The sectoral composition of growth was dominated by services, especially in the information and communication sector, while activity in industry and construction remained flat. This pattern of services-led growth is likely to continue in the near term.","The economy is benefiting from a robust labour market. Unemployment, at 6.4 per cent in October, is close to its historical low, and employment grew by 0.2 per cent in the third quarter. At the same time, labour demand cooled further, with the job vacancy rate at its lowest level since the pandemic.","The staff projections see domestic demand as the main engine of growth in the years ahead. Real incomes are set to rise further and the saving rate should gradually come down from its still high level, supporting consumption. Business investment and substantial government spending on infrastructure and defence should increasingly underpin the economy. However, the challenging environment for global trade is likely to remain a drag on growth in the euro area this year and next.","The Governing Council stresses the urgent need to strengthen the euro area and its economy in the present geopolitical context. We welcome the European Commission’s call for governments to prioritise sustainable public finances, strategic investment and growth-enhancing structural reforms. Unlocking the full potential of the Single Market is crucial. It is also vital to foster further capital market integration by completing the savings and investments union and the banking union to an ambitious timetable, and to rapidly adopt the Regulation on the establishment of the digital euro.","Annual inflation has been in a narrow range since the spring and remained at 2.1 per cent in November. Energy prices were 0.5 per cent lower than a year ago, after a larger decline in October. Food price inflation was 2.4 per cent, after 2.5 per cent in October and 3.0 per cent in September. Inflation excluding energy and food was steady at 2.4 per cent, as goods and services inflation moved in opposite directions. Goods inflation declined to 0.5 in November, from 0.6 per cent in October and 0.8 per cent in September. Services inflation rose to 3.4 per cent in October and 3.5 per cent in November, from 3.2 per cent in September.","Indicators of underlying inflation have changed little over recent months and remain consistent with our two per cent medium-term target. While growth in unit profits was unchanged in the third quarter, unit labour costs grew at a slightly higher rate than in the second quarter. Compensation per employee rose at an annual rate of 4.0 per cent. This was more than expected in the September staff projections, and was due to payments over and above negotiated wages. Forward-looking indicators, such as the ECB’s wage tracker and surveys on wage expectations, suggest that wage growth will ease in the coming quarters, before stabilising somewhat below 3 per cent towards the end of 2026.","Inflation should decline in the near term, mostly because past energy price rises will drop out of the annual rates. Staff expect it to stay below 2 per cent on average in 2026 and 2027, with energy inflation negative over most of this period and inflation excluding energy gradually declining. Inflation should then return to target in 2028, amid a strong rise in energy inflation. This in part reflects the upward effect on inflation of the EU Emissions Trading System 2, which is now expected to start in 2028, a year later than assumed in the September staff projections. Inflation excluding energy is projected to stabilise at around 2 per cent in the final years of the projection horizon.","Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.","While trade tensions have eased, the still volatile international environment could disrupt supply chains, dampen exports, and weigh on consumption and investment. A deterioration in global financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth. Geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, planned defence and infrastructure spending, together with productivity-enhancing reforms, may drive up growth by more than expected. An improvement in confidence could stimulate private spending.","The outlook for inflation continues to be more uncertain than usual on account of the still volatile international environment. Inflation could turn out to be lower if the rise in US tariffs reduces demand for euro area exports and if countries with overcapacity increase their exports to the euro area. Moreover, a stronger euro could bring inflation down further than expected. An increase in volatility and risk aversion in financial markets could weigh on demand and thereby also lower inflation. By contrast, inflation could turn out to be higher if more fragmented global supply chains pushed up import prices, curtailed the supply of critical raw materials and added to capacity constraints in the euro area economy. A slower reduction in wage pressures could delay the decline in services inflation. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected.","Market rates have increased since our last meeting. Bank lending rates for firms have been broadly stable since the summer, after falling in response to our policy rate cuts over the previous year. In October they stood at 3.5 per cent, unchanged from September. The cost of issuing market-based debt was 3.4 per cent, also close to its September level. The average interest rate on new mortgages again held steady, at 3.3 per cent in October.","Bank lending to firms grew by 2.9 per cent on a yearly basis in October, unchanged from September. Corporate bond issuance rose by 3.2 per cent, broadly unchanged as well. Mortgage lending strengthened, growing by 2.8 per cent after 2.6 per cent in September.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks are resilient, supported by strong capital and liquidity ratios, solid asset quality and robust profitability. But geopolitical uncertainty and the possibility of a sudden repricing in global financial markets pose risks to financial stability in the euro area. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 5 February 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","We would like to begin by congratulating Bulgaria on joining the euro area on 1 January 2026. We also warmly welcome Dimitar Radev, the Governor of Българска народна банка (Bulgarian National Bank), to the Governing Council. Membership of the euro area has almost doubled since 1999 and is testimony to the attractiveness of the single currency and the enduring benefits of European integration.","We will now report on the outcome of today’s meeting.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Our updated assessment reconfirms that inflation should stabilise at our two per cent target in the medium term. The economy remains resilient in a challenging global environment. Low unemployment, solid private sector balance sheets, the gradual rollout of public spending on defence and infrastructure and the supportive effects of our past interest rate cuts are underpinning growth. At the same time, the outlook is still uncertain, owing particularly to ongoing global trade policy uncertainty and geopolitical tensions.","We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.3 per cent in the fourth quarter of 2025, according to Eurostat’s preliminary flash estimate. Growth has mainly been driven by services, notably in the information and communication sector. Manufacturing has been resilient despite the headwinds from global trade and geopolitical uncertainty. Momentum in construction is picking up, also supported by public investment.","The labour market continues to support incomes, even though demand for labour has cooled further. Unemployment stood at 6.2 per cent in December, after 6.3 per cent in November. Growing labour incomes together with a lower household saving rate should bolster private consumption. Government spending on defence and infrastructure should also contribute to domestic demand. Business investment should strengthen further, and surveys indicate that firms are increasingly investing in new digital technologies. At the same time, the external environment remains challenging, owing to higher tariffs and a stronger euro over the past year.","The Governing Council stresses the urgent need to strengthen the euro area and its economy in the present geopolitical context. Governments should prioritise sustainable public finances, strategic investment and growth-enhancing structural reforms. Unlocking the full potential of the Single Market remains crucial. It is also vital to foster greater capital market integration by completing the savings and investments union and the banking union to an ambitious timetable, and to rapidly adopt the Regulation on the establishment of the digital euro.","Inflation declined to 1.7 per cent in January, from 2.0 per cent in December and 2.1 per cent in November. Energy inflation dropped to -4.1 per cent, after -1.9 per cent in December and -0.5 per cent in November, while food price inflation increased to 2.7 per cent, from 2.5 per cent in December and 2.4 per cent in November. Inflation excluding energy and food eased to 2.2 per cent, after 2.3 per cent in December and 2.4 per cent in November. Goods inflation edged up to 0.4 per cent, whereas services inflation declined to 3.2 per cent, from 3.4 per cent in December and 3.5 per cent in November.","Indicators of underlying inflation have changed little over recent months and remain consistent with our two per cent medium-term target. Negotiated wage growth and forward-looking indicators, such as the ECB’s wage tracker and surveys on wage expectations, point to a continued moderation in labour costs. However, the contribution to overall wage growth from payments over and above the negotiated wage component remains uncertain.","Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.","The euro area continues to face a volatile global policy environment. A renewed increase in uncertainty could weigh on demand. A deterioration in global financial market sentiment could also dampen demand. Further frictions in international trade could disrupt supply chains, reduce exports and weaken consumption and investment. Geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, planned defence and infrastructure spending, together with the adoption of productivity-enhancing reforms and the adoption of new technologies by euro area firms, may drive up growth by more than expected, including through positive effects on business and consumer confidence. New trade agreements and a deeper integration of our European Single Market could also boost growth beyond current expectations.","The outlook for inflation continues to be more uncertain than usual on account of the volatile global policy environment. Inflation could turn out to be lower if tariffs reduce demand for euro area exports by more than expected and if countries with overcapacity increase further their exports to the euro area. Moreover, a stronger euro could bring inflation down beyond current expectations. More volatile and risk-averse financial markets could weigh on demand and thereby also lower inflation. By contrast, inflation could turn out to be higher if there were a persistent upward shift in energy prices, or if more fragmented global supply chains pushed up import prices, curtailed the supply of critical raw materials and added to capacity constraints in the euro area economy. If wage growth moderated more slowly, services inflation might come down later than expected. The planned boost in defence and infrastructure spending could also cause inflation to pick up over the medium term. Extreme weather events, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected.","Market rates have come down since our last meeting, while global trade and geopolitical tensions temporarily increased financial market volatility. Bank lending rates for firms ticked up to 3.6 per cent in December, from 3.5 per cent in November, as did the cost of issuing market-based debt. The average interest rate on new mortgages again held steady, at 3.3 per cent in December.","Bank lending to firms grew by 3.0 per cent on a yearly basis in December, after 3.1 per cent in November and 2.9 per cent in October. The issuance of corporate bonds rose by 3.4 per cent in December. According to our latest bank lending survey for the euro area, firms’ demand for credit was up slightly in the fourth quarter, especially to finance inventories and working capital. At the same time, credit standards for business loans tightened again.","Mortgage lending grew by 3.0 per cent, after 2.9 per cent in November and 2.8 per cent in October, in response to still rising demand for loans and an easing of credit standards.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 19 March 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth. It will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.","We are well positioned to navigate this uncertainty. Inflation has been at around our two per cent target, longer-term inflation expectations are well anchored, and the economy has shown resilience over recent quarters. The incoming information in the period ahead will help us assess how the war will affect the inflation outlook and the risks surrounding it. We are closely monitoring the situation, and our data-dependent approach will help us set monetary policy as appropriate.","The new ECB staff projections exceptionally incorporate information up to 11 March, a later cut-off date than usual. In the baseline, headline inflation is seen to average 2.6 per cent in 2026, 2.0 per cent in 2027 and 2.1 per cent in 2028. Inflation has been revised up compared with the December projections, especially for 2026. This is because energy prices will be higher owing to the war in the Middle East. For inflation excluding energy and food, staff project an average of 2.3 per cent in 2026, 2.2 per cent in 2027 and 2.1 per cent in 2028. This is also higher than the path in the December projections, mainly owing to higher energy prices feeding into inflation excluding energy and food. Staff expect economic growth to average 0.9 per cent in 2026, 1.3 per cent in 2027 and 1.4 per cent in 2028. This implies a downward revision, especially for 2026, reflecting the global effects of the war on commodity markets, real incomes and confidence. At the same time, low unemployment, solid private sector balance sheets, and public spending on defence and infrastructure should continue to underpin growth.","In line with our monetary policy strategy commitment to incorporate risks and uncertainty into our decision-making, staff also assessed how the war in the Middle East could affect economic growth and inflation under some alternative illustrative scenarios. These scenarios will be published with the staff projections on our website. The scenario analysis suggests that a prolonged disruption in the supply of oil and gas would result in inflation being above, and growth being below, the baseline projections. The implications for medium-term inflation depend crucially on the magnitude of indirect and second-round effects of a stronger and more persistent energy shock.","We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy grew by 0.2 per cent in the fourth quarter of 2025, driven by stronger domestic demand. Households increased their spending as real incomes rose and unemployment remained close to its historical low. Construction and housing renovation strengthened, and firms invested more, particularly in areas such as research and development, software and databases. Growth was no longer weighed down by net exports as it had been in the previous two quarters. It was underpinned mainly by services.","Staff still see private consumption as the main driver of growth over the medium term. Investment should also continue to grow, with governments spending more on defence and infrastructure, and firms increasingly investing in new digital technologies. The external environment remains challenging, including in light of volatile global trade policies.","The war in the Middle East is disrupting commodity markets and weighing on real incomes and confidence. This has led to a downward revision of consumption and investment in the baseline staff projections, especially for 2026. The impact would be even more pronounced in alternative scenarios with a more severe and prolonged energy shock.","The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Any fiscal responses to the energy price shock should be temporary, targeted and tailored. The current energy crisis underscores the imperative to further reduce dependence on fossil fuels. Completing the savings and investments union is vital to fund innovation and support the green and digital transitions. The digital euro and tokenised wholesale central bank money will enhance Europe’s strategic autonomy, competitiveness and financial integration, and will boost innovation in payments. It is thus essential to swiftly adopt the Regulation on the establishment of the digital euro. Simplifying and harmonising rules across the EU’s Single Market will help European firms grow faster.","Inflation rose to 1.9 per cent in February, from 1.7 per cent in January. Energy prices were 3.1 per cent lower than a year ago, after being 4.0 per cent lower in January. Food price inflation edged down to 2.5 per cent. Inflation excluding energy and food increased to 2.4 per cent in February, from 2.2 per cent in January. The increase reflected goods inflation rising to 0.7 per cent from 0.4 per cent and services inflation moving up to 3.4 per cent from 3.2 per cent.","Indicators of underlying inflation have changed little over recent months and remain consistent with our two per cent medium-term target. Corporate profits recovered further in the fourth quarter of 2025, while unit labour costs rose at a similar rate as in the previous quarter. Growth in compensation per employee slowed to 3.7 per cent, from 4.0 per cent in the third quarter. Negotiated wage growth and forward-looking indicators, such as the ECB’s wage tracker and surveys on wage expectations, suggest that labour costs will ease further in the course of 2026, which should support the return of inflation to target.","The increase in energy prices caused by the war will drive inflation above 2 per cent in the near term. If persistent, higher energy prices may lead to a broader increase in inflation through indirect and second-round effects, a situation which requires close monitoring. Inflation expectations in the financial markets have moved up significantly over shorter horizons. Most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around our target.","The risks to the growth outlook are tilted to the downside, especially in the near term. The war in the Middle East is a downside risk to the euro area economy, adding to the volatile global policy environment. A prolonged war could increase energy prices further and for longer than currently expected, and also weigh on confidence. These factors would erode incomes and make firms and households more reluctant to invest and spend. A worsening of global financial market sentiment could further dampen demand. Additional frictions in international trade could disrupt supply chains, reduce exports and weaken consumption and investment. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, growth could turn out to be higher if the economic repercussions of the war in the Middle East proved to be more short-lived than currently expected. Moreover, planned defence and infrastructure spending, reforms to enhance productivity, and euro area firms adopting new technologies may drive up growth by more than expected. New trade agreements and a deeper integration of the Single Market could also boost growth beyond current expectations.","The risks to the inflation outlook are tilted to the upside, especially in the near term. A prolonged war in the Middle East could lead to a larger and longer-lasting upward shift in energy prices than currently expected, raising euro area inflation further. This could be reinforced and become more persistent if inflation expectations and wage growth were to rise in response, if the energy price increase were to spill over to non-energy inflation to a larger extent than assumed in the baseline, or if the war disrupted global supply chains more broadly. Ongoing trade tensions could also give rise to more fragmented global supply chains, curtail the supply of critical raw materials and tighten capacity constraints in the euro area economy. By contrast, inflation could turn out to be lower if the economic repercussions of the war in the Middle East proved to be more short-lived or if indirect and second-round effects proved less pronounced than currently expected. Inflation could also be lower if tariffs reduced demand for euro area exports by more than expected and if countries with overcapacity increased further their exports to the euro area. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well.","The war in the Middle East has had a pronounced impact on global financial markets. Overall financial conditions have tightened since our last meeting. Stock markets have fallen and market interest rates in the euro area, especially short-term rates, have risen notably.","In January, bank lending rates for firms and the cost of issuing market-based debt both remained at 3.6 per cent, while the average interest rate on new mortgages edged up to 3.4 per cent. Bank lending to firms grew by 2.8 per cent on a yearly basis in January, down from 3.0 per cent in December. However, this was offset by stronger issuance of corporate bonds, with the annual growth rate rising to 4.0 per cent, from 3.5 per cent in December. Mortgage lending grew by 3.0 per cent, unchanged from December.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 30 April 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with our previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term.","The war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment. The implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.","We remain well positioned to navigate the current uncertainty. The euro area entered this period of surging energy prices with inflation at around our two per cent target, and the economy has shown resilience over recent quarters. Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.","We will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The euro area economy was showing some momentum when the current turbulence started. Real GDP grew by 0.1 per cent in the first quarter of 2026, according to Eurostat’s preliminary flash estimate. Domestic demand remains the main driver of growth, supported by a resilient labour market. However, the economic outlook is highly uncertain and will depend on how long the war in the Middle East lasts and how strongly it affects energy and other commodity markets, as well as global supply chains.","The incoming information suggests that the conflict is weighing on economic activity. Surveys point to slowing growth, and consumers and businesses have become less confident about the future since the war began. Longer delivery times and rising input prices suggest supply chains are coming under pressure.","Looking ahead, high energy costs are expected to continue to weigh on real incomes, making households and firms more reluctant to consume and invest. While unemployment remained close to historical lows in March, at 6.2 per cent, labour demand has cooled further. At the same time, households are still benefiting from a solid financial position, and investment should continue to be underpinned by governments spending more on defence and infrastructure and by firms increasingly investing in new digital technologies. This favourable starting point provides some cushioning against the fallout from the war.","The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Fiscal responses to the energy price shock should be temporary, targeted and tailored. Reforms to enhance the euro area’s growth potential and accelerate the energy transition to reduce reliance on fossil fuels are more vital than ever. Completing the savings and investments union is key to funding innovation, supporting the green and digital transitions and improving productivity. The digital euro and tokenised wholesale central bank money will enhance Europe’s strategic autonomy, competitiveness and financial integration, and will boost innovation in payments. It is thus essential to swiftly adopt the Regulation on the establishment of the digital euro. Simplifying and harmonising rules across the EU’s Single Market will help European firms grow faster.","Inflation rose to 3.0 per cent in April, from 2.6 per cent in March and 1.9 per cent in February. The rise has been driven by surging energy prices caused by the war in the Middle East. Energy price inflation jumped to 10.9 per cent in April, after 5.1 per cent in March. Food price inflation edged up to 2.5 per cent in April. Inflation excluding energy and food decreased to 2.2 per cent, from 2.3 per cent in March, reflecting a fall in services inflation, which declined to 3.0 per cent, from 3.2 per cent in March. Goods inflation went up to 0.8 per cent, from 0.5 per cent in March.","Indicators of underlying inflation have changed little over recent months. For now, the ECB’s wage tracker and surveys on wage expectations continue to indicate easing labour costs in the course of 2026. At the same time, surveys indicate an increase in other cost components and in selling price expectations. Inflation expectations have moved up significantly over shorter horizons. Most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around target in the medium term.","The increase in energy prices will keep inflation well above 2 per cent in the near term. As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage-setting, inflation expectations, and overall economic dynamics.","The risks to the growth outlook are to the downside. The war in the Middle East remains a downside risk to the euro area economy, adding to the volatile global policy environment. Prolonged disruption of the supply of energy could increase energy prices further and for longer than currently expected. These factors would erode incomes and make firms and households more reluctant to invest and spend. The drag on growth would intensify if the closure of major shipping routes were to cause acute shortages of key inputs that forced euro area firms to curtail output. A worsening of global financial market sentiment could further dampen demand. Additional frictions in international trade could exacerbate supply chain disruptions, reduce exports and weaken consumption and investment. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, growth could turn out to be higher if the economy proved to be more adaptable to the disruption caused by the war in the Middle East or if the conflict were resolved more quickly than currently expected. Moreover, planned defence and infrastructure spending, reforms to enhance productivity, and euro area firms adopting new technologies may drive up growth by more than expected. New trade agreements and a deeper integration of the Single Market could also boost growth beyond current expectations.","The risks to the inflation outlook are to the upside. If energy prices were to rise by more and for longer than currently expected, euro area inflation would increase further. This could be reinforced and become more persistent if higher energy prices were to spill over by more than expected to other prices and to wages, if longer-term inflation expectations were to rise in response, or if global supply chains were disrupted more broadly. Ongoing trade tensions could also give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the euro area economy. By contrast, inflation could turn out to be lower if the economic effects of the war in the Middle East proved to be more short-lived than currently expected or if indirect and second-round effects proved less pronounced. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well.","The war in the Middle East has caused significant volatility in global financial markets. Overall financial conditions remain tighter than before the war.","The cost of issuing market-based debt rose to 3.9 per cent in March, from 3.5 per cent in February. Bank lending rates for firms – based on data recorded prior to the war – edged down to 3.5 per cent in February, while mortgage rates remained at 3.4 per cent.","The annual growth rate of bank lending to firms increased to 3.2 per cent in March, from 3.0 per cent in February, while the growth rate of corporate bond issuance fell to 3.9 per cent, from 4.5 per cent in February. Credit standards for loans to firms tightened in the first quarter, as reported in our latest bank lending survey for the euro area. This tightening was due to banks becoming more concerned about the economic risks faced by their customers. Demand for loans to firms decreased slightly in the first quarter, especially for fixed investment.","Mortgage lending grew by 3.0 per cent in March, after 3.1 per cent in February, amid a small tightening in credit standards and unchanged demand.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 11 June 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. In line with this commitment, we today decided to raise the three key ECB interest rates by 25 basis points. The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.","In the baseline of the new Eurosystem staff projections, headline inflation is expected to average 3.0 per cent in 2026, 2.3 per cent in 2027 and 2.0 per cent in 2028. For inflation excluding energy and food, the baseline foresees an average of 2.5 per cent in 2026 and 2027 and 2.2 per cent in 2028. Compared with March, staff have revised up their baseline projection for inflation in 2026 and 2027 owing to a higher path for energy prices, which, to some extent, is expected to feed into food, goods and services inflation. The baseline sees economic growth at an average of 0.8 per cent in 2026, 1.2 per cent in 2027 and 1.5 per cent in 2028. This is a downward revision for 2026 and 2027, reflecting a more pronounced impact of the war on commodity markets, real incomes and confidence.","The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth. The full implications of the war for medium-term inflation and growth will depend on the intensity and duration of the energy price shock, as well as the scale of its indirect and second-round effects. This uncertainty is also reflected in the broad range of outcomes for inflation and growth in the updated illustrative scenarios put together by Eurosystem staff. These will be published with the staff projections on our website.","With today’s decision, we remain well positioned to navigate the uncertainty caused by the war. We will closely monitor the situation and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","Adjusting for a temporary factor in Ireland, the euro area economy grew in the first quarter, supported by domestic demand and exports. Yet the war in the Middle East is weighing on activity and surveys are pointing to a slowdown, especially in services. Manufacturing has held up so far. In part, this is because firms have been building up stocks to cope with supply chain pressures. It also reflects higher defence spending.","The labour market remains resilient. Unemployment, at 6.3 per cent in April, remains close to historical lows. The first quarter saw additional jobs being created, although at a slower pace than in the last quarter of 2025. Labour demand has cooled further, and firms and households expect the labour market to weaken.","Looking ahead, staff now expect domestic demand to be weaker than they projected in March as the war weighs on confidence and higher energy costs erode real incomes. At the same time, household balance sheets are solid overall, and consumption should remain the main driver of growth. Higher energy costs and lower confidence will dent private investment in the short run, but it should be underpinned by firms investing in new digital technologies. Governments spending more on defence and infrastructure should continue to support public investment. These factors are expected to provide some cushioning against the fallout from the war.","The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Fiscal sustainability is a crucial anchor for broader economic stability. Fiscal responses to the energy price shock should be temporary, targeted and tailored, as emphasised in the European Commission’s 2026 European Semester Spring Package. Reforms to enhance the euro area’s growth potential and accelerate the energy transition to reduce reliance on fossil fuels are more vital than ever. Completing the savings and investments union is key to funding innovation, supporting the green and digital transitions and improving productivity. The digital euro and tokenised wholesale central bank money will enhance Europe’s strategic autonomy, competitiveness and financial integration, and will boost innovation in payments. It is thus essential to swiftly adopt the Regulation on the establishment of the digital euro. Simplifying and harmonising rules across the EU’s Single Market will help European firms grow faster.","Inflation rose to 3.2 per cent in May, from 3.0 per cent in April. Energy price inflation ticked up to 10.9 per cent, after 10.8 per cent in April, while food price inflation fell from 2.4 per cent to 2.0 per cent. Inflation excluding energy and food picked up to 2.5 per cent, from 2.2 per cent in April, as goods inflation edged up to 0.9 per cent and services inflation increased from 3.0 per cent to 3.5 per cent.","Domestic cost pressures eased in the first quarter, supported by slower growth in wages and profits. The ECB’s wage tracker and surveys on wage expectations continue to indicate that wage growth should ease over the year. However, it is becoming more expensive for firms to source other inputs and they therefore expect to put up their selling prices. Moreover, some indicators of underlying inflation have already been driven higher by the energy shock. Inflation expectations over shorter horizons remain well above levels before the outbreak of the war in the Middle East. At the same time, most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around target in the medium term.","The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027. It will also have an impact on food, goods and services inflation. Inflation should then return to target in the second half of 2027, supported by falling energy prices and slower increases in other prices. However, the war in the Middle East remains a major source of uncertainty. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. We will therefore closely monitor the size and persistence of the energy price increase, and how it feeds through to price and wage-setting, inflation expectations and overall economic dynamics.","The risks to the growth outlook are to the downside, mainly owing to the war in the Middle East, which has added to the volatile global policy environment. Prolonged disruption of energy supplies could increase energy prices further and for longer than currently expected. These factors would erode real incomes even more and make firms and households more reluctant to invest and spend. The drag on growth would intensify if the closure of major shipping routes were to cause acute shortages of key inputs that forced euro area firms to curtail output. A worsening of global financial market sentiment or a tighter supply of credit could dampen demand. Additional frictions in international trade could also further disrupt supply chains, reduce exports and weaken consumption and investment. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the war in the Middle East or if the war was resolved promptly and sustainably. Moreover, planned defence and infrastructure spending, reforms to enhance productivity and euro area firms adopting new technologies may drive up growth by more than expected. A deeper integration of the Single Market could also boost growth beyond current expectations.","The risks to the inflation outlook are to the upside. If energy prices were to rise by more and for longer than currently expected, euro area inflation would increase further. This could be reinforced and become more persistent if higher energy prices were to spill over by more than expected to other prices and to wages, if longer-term inflation expectations were to rise in response, or if global supply chains were disrupted more broadly. Ongoing trade tensions could also give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the euro area economy. Extreme weather events, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected. By contrast, inflation could turn out to be somewhat lower if the economic effects of the war in the Middle East proved to be more short-lived than currently expected or if indirect or second-round effects proved less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well.","Financial conditions are broadly unchanged since our last meeting but remain tighter than before the war. The cost of issuing market-based debt rose to 4.0 per cent in April, from 3.9 per cent in March. Bank lending rates for firms remained at 3.6 per cent in April and mortgage rates at 3.4 per cent.","The annual growth rate of bank lending to firms increased to 3.4 per cent in April, from 3.2 per cent in March, while the growth rate of corporate bond issuance rose to 4.6 per cent. Mortgage lending in April again grew by 3.0 per cent.","In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and financial stability. Euro area banks are resilient, supported by strong capital and liquidity ratios, solid asset quality and robust profitability. However, a sudden, sharp drop in asset prices, potentially amplified by the non-bank financial sector and deteriorating asset quality, particularly in energy and trade-sensitive sectors, would pose risks to financial stability. These risks increase the longer the current geopolitical conflicts last. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space.","The Governing Council today decided to raise the three key ECB interest rates by 25 basis points. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 23 July 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East. Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. We are therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term.","With today’s decision, we remain well positioned to navigate the uncertainty caused by the conflict. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","Recent information points to some improvement in economic activity in the second quarter, even though the conflict in the Middle East remained a headwind. Surveys suggest that activity in the services sector has partly recovered, after weakening markedly in the immediate aftermath of the energy shock. Digital services have been robust, in part owing to the increasing contribution from AI-related activity. Manufacturing has continued to hold up, supported by firms building up stocks to guard against supply chain risks, as well as by higher defence spending. Unemployment stood at 6.2% in May, close to historical lows. At the same time, job postings have continued to decline and both firms and households expect the labour market to remain weaker than before the conflict.","Forward-looking indicators suggest that economic growth will remain modest in the near term, weighed down by the energy shock and related uncertainties. Yet the fundamental drivers of medium-term growth remain intact. Private consumption, investment in new digital technologies, government spending on defence and infrastructure, and some recovery in exports should all contribute to overall growth momentum.","The Governing Council reiterates its call for urgent action to strengthen the euro area economy while maintaining sound public finances. Simplifying and harmonising rules across the EU’s Single Market, accelerating the energy transition and completing the savings and investments union are key building blocks. Fiscal responses to the energy shock should be temporary, targeted and tailored. The positive vote in the European Parliament earlier this month was a significant milestone on the path to establishing the digital euro. We welcome the shared objective of the Parliament, EU Council and Commission of reaching agreement by the end of this year on the Single Currency Package. The digital euro will complement physical cash with its digital equivalent, providing a means of payment for any digital transaction throughout the euro area.","Inflation declined to 2.8 per cent in June, from 3.2 per cent in May. Energy price inflation declined to 8.5 per cent, after 10.8 per cent in May, while food price inflation fell from 1.9 per cent to 1.5 per cent. Inflation excluding energy and food eased to 2.4 per cent, from 2.6 per cent in May, with goods inflation decreasing from 0.9 per cent to 0.7 per cent and services inflation from 3.5 per cent to 3.2 per cent.","The energy shock continues to feed into higher prices. It is becoming more expensive for firms to source inputs and they therefore expect to put up their selling prices. While developments in underlying inflation have remained contained, the full effects of the energy shock have yet to play out. The ECB’s wage tracker and surveys on wage expectations continue to indicate moderate wage growth over the coming quarters. Rising labour productivity has also helped contain growth in unit labour costs. Inflation expectations over shorter horizons remain at elevated levels. Most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around target in the medium term.","While energy price inflation declined in June, its rise since the start of the conflict – and its impact on food, goods and services price inflation – is likely to keep inflation well above target into the first half of 2027. Inflation should then decline, as energy prices are expected to fall and other prices should rise more slowly. However, the conflict remains a major source of uncertainty. We are therefore closely monitoring the size and persistence of the energy price increase, and how it feeds through to price and wage-setting, inflation expectations and overall economic dynamics.","The risks to the growth outlook are to the downside. While the Memorandum of Understanding agreed between the United States and Iran in June constituted a first attempt to resolve the conflict, recent weeks have brought renewed setbacks and the geopolitical situation remains fragile. Renewed disruption of energy supplies could increase energy prices further and for longer than currently expected. This would weigh on real incomes, spending and investment. A worsening of global financial market sentiment or a tighter supply of credit could dampen demand. Additional frictions in international trade could also further disrupt supply chains, reduce exports and weaken consumption and investment. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the conflict in the Middle East or if the conflict was resolved sustainably. Moreover, planned defence and infrastructure spending, and reforms to enhance productivity and complete the Single Market, as well as euro area firms adopting new technologies, may drive up growth by more than expected.","The risks to the inflation outlook are to the upside. The energy shock could intensify further and its effects on other prices and wages could be stronger than currently expected. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. Ongoing trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the euro area economy. Extreme weather events – as illustrated by the ongoing heatwaves – and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected. By contrast, inflation could turn out to be lower if the conflict in the Middle East was resolved sustainably or if indirect or second-round effects proved less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well.","Overall financial conditions have become slightly tighter since our previous meeting, consistent with the increase in the key ECB interest rates. Bank lending rates for firms and the cost of issuing market-based debt remained unchanged in May, at 3.6 per cent and 4.0 per cent respectively. The annual growth rate of bank lending to firms increased to 4.0 per cent, from 3.4 per cent in April, but this was partly offset by slower growth in corporate bond issuance, which fell from 4.5 per cent to 3.4 per cent. Credit standards for business loans tightened somewhat in the second quarter, as reported in our latest bank lending survey for the euro area. Demand for loans to firms increased slightly, driven by higher working capital needs but also by borrowing for fixed investment by large firms.","Mortgage rates rose to 3.5 per cent in May, after 3.4 per cent in April, while mortgage lending growth edged up to 3.1 per cent. Credit standards for mortgages tightened in the second quarter as banks became more concerned about the economic risks faced by their customers and less willing to take on risks themselves. Demand for mortgages decreased on the back of deteriorating consumer confidence and higher interest rates.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Berlin, 10 September 2026","Good afternoon, the Vice-President and I welcome you to our press conference. I would like to thank President Nagel for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council.","The Governing Council today decided to raise the three key ECB interest rates by 25 basis points. The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period. Today’s decision underscores our commitment to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term.","The baseline of the new ECB staff projections sees headline inflation averaging 3.0 per cent in 2026, 2.5 per cent in 2027 and 2.1 per cent in 2028. For inflation excluding energy and food, the baseline foresees 2.5 per cent in 2026, 2.6 per cent in 2027 and 2.3 per cent in 2028. Compared with June, the baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028. The baseline projection for economic growth is 0.9 per cent for 2026, 1.4 per cent for 2027 and 1.5 per cent for 2028. This is an upward revision for both 2026 and 2027, mainly reflecting the greater than expected resilience of the euro area economy.","The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. In relation to the energy shock, the updated scenarios put together by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects.","With today’s decision, we remain well positioned to navigate the uncertainty caused by the conflict. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The economy proved resilient in the second quarter, despite headwinds from the energy shock. Growth was broad-based across countries and sectors. This pattern is likely to have continued into the third quarter. Manufacturing continues to perform solidly as governments spend more on defence and infrastructure. Consumer confidence has rebounded from low levels, helping services recover from the initial energy shock. Increased AI-related activity is visible in digital services, business investment and exports.","The labour market has remained robust, with the unemployment rate unchanged in July at 6.4 per cent. Growth in employment and the labour force continues to slow, while productivity has gradually picked up.","Looking ahead, the near-term growth outlook has improved compared with the last round of staff projections, reflecting, in particular, the resilience of private consumption and public spending. Over the medium term, consumption should be supported by gradually falling energy prices and a strong labour market. Growth will increasingly be bolstered by business and housing investment. Export growth should benefit from rising foreign demand but is being held back by competitiveness challenges and uncertainty about global trade policies.","Higher potential growth requires structural reform and has to be underpinned by sound public finances. Simplifying and harmonising rules across the EU’s Single Market, accelerating the energy transition and completing the savings and investments union are key building blocks. As the process for agreeing on the legal framework for the digital euro moves into its final stage, we reiterate the importance of reaching agreement on the Single Currency package as quickly as possible. Fiscal responses to the energy shock should be temporary, targeted and tailored.","Inflation increased to 3.3 per cent in August, from 2.9 per cent in July. Energy price inflation rose to 14.3 per cent, after 10.3 per cent in July. This increase is likely to reflect, in particular, a strong contribution from refining margins on liquid fuels, as well as higher energy commodity prices. Food price inflation remained unchanged at 1.2 per cent. Inflation excluding energy and food edged down to 2.4 per cent, from 2.5 per cent in July, with goods inflation increasing from 0.9 per cent to 1.2 per cent and services inflation falling from 3.3 per cent to 3.0 per cent.","Most measures of underlying inflation were broadly stable in July. Wages do not show a material response to the energy shock at this stage. Compensation per employee grew at an annual rate of 3.3 per cent in the second quarter, down from 3.5 per cent in the first quarter. Rising labour productivity has also helped contain growth in unit labour costs, which slowed to 2.6 per cent, from 3.5 per cent in the first quarter. At the same time, growth in unit profits rose from 0.3 per cent to 2.2 per cent. Looking ahead, the ECB’s wage tracker points to a modest uptick, to 2.7 per cent, in negotiated wage growth in the first half of 2027. Inflation expectations over shorter horizons remain at elevated levels, but most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around target in the medium term.","The conflict in the Middle East and recent developments in Russia’s unjustified war against Ukraine have pushed the path of energy prices up further. This is likely to keep headline inflation well above target into the first half of 2027. Thereafter, energy inflation should decline and turn negative up to mid-2028, bringing headline inflation down. Higher energy prices are expected to feed through gradually to core and food price inflation. The improved economic outlook should also contribute to slightly higher core inflation, which is expected to keep rising until early 2027 and stay elevated for the rest of the year, before moderating in 2028. Overall, headline inflation is expected to return to around target towards the end of 2027, supported by the effects of higher interest rates. We will continue to monitor closely the size and persistence of the energy price increase and how it feeds through to price and wage-setting, inflation expectations and overall economic dynamics.","The risks to the growth outlook are to the downside. This is due, in particular, to the Middle East conflict and developments in Russia’s unjustified war against Ukraine. Renewed disruption of energy supplies could cause energy prices to rise further and for longer than currently expected. This would weigh on real incomes, spending and investment. A worsening of global financial market sentiment or spillovers in global bond markets could tighten credit conditions and thereby dampen demand. A resurgence of trade tensions between major economies could also further disrupt supply chains, reduce exports and weaken consumption and investment. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the ongoing conflicts or if these were resolved sustainably. Moreover, the adoption of new technologies by euro area firms and spending on defence and infrastructure, as well as reforms to enhance productivity and complete the EU’s Single Market, may drive up growth by more than expected.","The risks to the inflation outlook are to the upside. This is due, in particular, to the Middle East conflict and developments in Russia’s unjustified war against Ukraine. The energy shock could intensify further and its effects on other prices and wages could be stronger than currently expected. Gas prices, in particular, could increase in the event of further supply disruptions or an unusually cold winter coinciding with low storage levels. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. Renewed trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the euro area economy. Extreme weather events, potentially reinforced by intensifying “El Niño” conditions, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected. By contrast, inflation could turn out to be lower if ongoing geopolitical conflicts were resolved sustainably or if indirect or second-round effects from the recent energy price shock proved less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well.","Market interest rates have increased since our previous meeting, reflecting similar moves in global markets. Following our interest rate increase in June, bank lending rates for firms have risen, to stand at 3.8 per cent in June and July, from 3.6 per cent in May. The cost of market-based corporate debt stood at 4.0 per cent in July, which was similar to previous months and well above its level before the conflict in the Middle East. The annual growth rate of bank lending to firms, which usually responds to changes in monetary policy with a longer delay, increased further to 4.4 per cent in July, from 4.0 per cent in May and June. The annual growth rate of corporate bond issuance was 3.4 per cent, after 3.6 per cent in June and 3.3 per cent in May. Mortgage rates were unchanged in June and July, at 3.5 per cent, while mortgage lending growth softened to 3.0 per cent in July, from 3.1 per cent in May and June.","The Governing Council today decided to raise the three key ECB interest rates by 25 basis points. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions.","Frankfurt am Main, 29 October 2026","Good afternoon, the Vice-President and I welcome you to our press conference.","The Governing Council today decided to keep the three key ECB interest rates unchanged. Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook. While the full effects of the energy shock are still unfolding, underlying inflation has remained broadly stable so far and wages do not show a material response at this stage. The increased magnitude and duration of the energy shock, as well as the implications for indirect and second-round effects, are likely to drive up inflation and lower growth. Financing conditions have tightened since our last meeting, which is likely to weigh on inflation and growth. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term.","We remain well positioned to navigate the current elevated uncertainty. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","The decisions taken today are set out in a press release available on our website.","I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.","The incoming data suggest that the euro area economy continued to expand in the third quarter of the year. Services have recovered, after weakening at the start of the Middle East conflict. Manufacturing, digital services and exports are benefiting from AI-related business investment. Government spending on infrastructure and defence is also supporting activity. These factors should continue to underpin growth in the near term. At the same time, renewed energy price increases have hit consumer confidence, and higher financing costs are likely to weigh on growth.","The unemployment rate remained at 6.4 per cent in August. Growth in employment and the labour force remains subdued, while productivity has gradually picked up.","Over the medium term, a recovery in confidence and real incomes, driven by gradually declining energy prices and a robust labour market, should bolster domestic demand. Investment in AI-related activities and government spending on infrastructure and defence should also continue to support growth. Export growth should pick up on the back of strengthening foreign demand.","Higher potential growth requires structural reform and has to be underpinned by sound public finances. Fiscal sustainability is a crucial anchor for broader economic stability. Fiscal responses to the energy shock should be temporary, targeted and tailored. Simplifying and harmonising rules across the EU’s Single Market, accelerating the energy transition and completing the savings and investments union are key building blocks to make our economy more dynamic and resilient. As the process for agreeing on the legal framework for the digital euro moves into its final stage, we reiterate the importance of reaching agreement on the Single Currency Package as quickly as possible.","Inflation rose to 3.8 per cent in September, from 3.2 per cent in August. Energy price inflation increased markedly, to 18.9 per cent, from 14.3 per cent in August. Diesel and petrol prices reached new peaks in September, in part reflecting elevated refining margins. Inflation excluding energy increased to 2.3 per cent in September, from 2.1 per cent in August. Food price inflation increased to 1.3 per cent, from 1.1 per cent. Services inflation increased to 3.2 per cent in September, from 3.0 per cent in August, while goods inflation declined to 1.1 per cent from 1.2 per cent.","Indicators of underlying inflation have remained broadly stable, although the early stages of the pricing chain point to upward pressures. Wage pressures remain moderate. Compensation per employee grew by 3.3 per cent in the second quarter, down from 3.6 per cent in the first quarter, while rising productivity has helped contain the growth of unit labour costs. Our forward-looking wage tracker suggests that negotiated wage growth will fluctuate between 2.5 per cent and 2.8 per cent in the remaining months of 2026 and average 2.6 per cent in the first three quarters of 2027. Inflation expectations over shorter horizons have risen, but most measures of longer-term inflation expectations stand at around 2 per cent, supporting the stabilisation of inflation around target in the medium term.","Energy prices have increased beyond the baseline path foreseen in the September ECB staff projections. This is likely to raise inflation further in the near term and keep headline inflation well above target over the coming quarters. Thereafter, declining energy inflation, together with the effects of higher interest rates, should support the return of inflation to target.","The risks to the growth outlook are to the downside. This is due, in particular, to the Middle East conflict and recent developments in Russia’s unjustified war against Ukraine. Continued disruption of energy supplies could cause energy prices to rise further and for longer than currently expected. This would weigh on real incomes, spending and investment. A worsening of global financial market sentiment or intensifying spillovers in global bond markets could tighten financing conditions and thereby dampen demand. Fiscal uncertainty may also further tighten financing conditions and weaken confidence, thereby lowering consumption and investment. A resurgence of trade tensions between major economies could further disrupt supply chains, reduce exports and weaken consumption and investment. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the ongoing conflicts or if these were resolved sustainably. Moreover, the adoption of new technologies by euro area firms and government spending on infrastructure and defence, as well as reforms to enhance productivity and complete the EU’s Single Market, may drive up growth by more than expected.","The risks to the inflation outlook are to the upside. This is due, in particular, to the Middle East conflict and recent developments in Russia’s unjustified war against Ukraine. The energy shock could intensify further and its effects on other prices and wages could be stronger than currently expected. Gas prices, in particular, could increase if supply is disrupted further or an unusually cold winter coincides with low storage levels. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. Renewed trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the euro area economy. Extreme weather events, potentially reinforced by intensifying “El Niño” conditions, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected. By contrast, inflation could turn out to be lower if ongoing geopolitical conflicts were resolved sustainably or if indirect or second-round effects from higher energy prices proved less pronounced than anticipated. More volatile and risk-averse financial markets, together with higher long-term interest rates, could weigh on demand and thereby lower inflation as well.","Financial conditions have tightened since our previous meeting. Interest rates have broadly moved up, while stock prices have fallen.","The cost of market-based debt for firms rose to 4.1 per cent in August, from 4.0 per cent in July, while bank lending rates for firms remained at 3.8 per cent. Growth in bank lending to firms slowed to an annual rate of 4.2 per cent in August and September, from 4.4 per cent in July, while corporate bond issuance grew at an annual rate of 4.2 per cent in September, up from 3.8 per cent in August and 3.5 per cent in July. Credit standards for loans to firms tightened in the third quarter, as reported in our latest bank lending survey, with banks citing concern about the economic risks faced by their customers. Despite higher financing needs for inventories and working capital, corporate loan demand declined, reflecting in particular higher interest rates.","Mortgage rates rose to 3.6 per cent in August, from 3.5 per cent in July, while mortgage lending growth edged down to 3.0 per cent in September. Credit standards for mortgage lending were unchanged in the third quarter, whereas demand for mortgages declined substantially given higher interest rates.","The Governing Council today decided to keep the three key ECB interest rates unchanged. We are committed to setting monetary policy to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.","In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.","We are now ready to take your questions."]