MNI: ECB On Hold, Sets TLTRO Terms, Extends Guidance: Text

     LONDON (MNI) - Below is the text of the Introductory Statement at the press

conference following the June 10 Governing Council meeting, released by the

European Central Bank.

     Mario Draghi, President of the ECB 

     Luis de Guindos, Vice-President of the ECB 

     Frankfurt am Main 

     6 June 2019 

     INTRODUCTORY STATEMENT

     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 corps 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 EMU remains a

priority. The Council welcomes ongoing work and urges further specific and

decisive steps to complete the banking union and the capital markets union.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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