MNI: ECB Sees Balance Of Risks For Economy Growing: Text

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

conference following the January 24 Governing Council meeting, released by the

European Central Bank.

     December 13

     Mario Draghi, President of the ECB 

     Luis de Guindos, Vice-President of the ECB 

     Frankfurt am Main 

     24 January 2019 

     INTRODUCTORY STATEMENT

     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.

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

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