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HIGHLIGHTS-Draghi comments at ECB news conference

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FRANKFURT | Thu Aug 1, 2013 9:53am EDT

FRANKFURT Aug 1 (Reuters) - The European Central Bank left its main interest rate unchanged at a record low of 0.5 percent on Thursday, as recent economic data has kindled hopes of a recovery taking hold this quarter.

Following are comments by ECB President Mario Draghi at a post-meeting news conference.

ASKED IF THE DECISION TO LEAVE INTEREST RATES UNCHANGED WAS UNANIMOUS:

"We actually discussed only forward guidance and within that ... confirmation of forward guidance you have an implicit decision about today's interest rates. And the decision about forward guidance was in fact unanimous."

ASKED IF GOVERNMENTS HAVE USED THE TIME BOUGHT BY THE OMT EFFECTIVELY:

"Some of them certainly did, in some there has been significant progress, in some others less so.

"But by and large if you ... disregard ECB action and look at policy implementation ... I think progress has been significant since a year ago on all grounds, certainly on the front of fiscal consolidation. On the front of structural reform, (progress) is more staggered ... but all in all, the picture seems to be better from all angles than a year ago."

ON OMT

"OMT has decreased the general riskiness in the euro area. We saw a reduction in the size of the ECB balance sheet and we saw a significant reduction in risk premia. All this was basically necessary to reactivate the two channels through which the stimulus would finally reach the real economy. The rate channel ... and the confidence channel.

"We are seeing possibly the first signs that this significant improvement in confidence and in interest rates is finding its way through to the economy. But as I said these are tentative signs."

HOW DO WE KNOW IF FORWARD GUIDANCE HAS CEASED?

"We have a variety of ways to signal this (change in guidance). (The statement's language on the economy) is one thing one should look at. You have all the parameters in your hands to judge about the length of time ... and about how the language of our forward of guidance might be changed."

ASKED ABOUT GUIDANCE BEING REVISED MONTHLY

"We may have to repeat it every month because we are not sure that you (the press) will actually get it ... that is what he meant.

"If we repeat every month you could infer from this that actually it is not forward guidance for an extended period of time but only for a month and that is certainly not what the Governing Council wants."

ON DEFLATION

"We do not see deflation in any country in the euro area. We see price falls in a variety ... of sectors which are due to a variety of factors.

"We don't see deflation basically for any country at this point in time."

ON COLLATERAL

"At country level we estimate that the actual impact (of haircuts) has been at most around 1 percent. Now you have to judge this negative impact against the positive effect (of) previous decisions ... which has broadened the collateral."

PUBLISHING MEETING MINUTES PROPOSAL

"The Governing Council thought it would be wise to have a richer communication ... we are not a one-country set-up ... so it is especially important that any modification we introduce should not put at risk the independence of its members ... The executive board will present to the Governing Council a proposal for discussion this fall."

NO PRECISE TIMEFRAME

"(Forward guidance) is more than a forecast ... (The statement says) we - the policymakers - expect the key ECB policy rates to remain at the present or lower levels for an extended period of time. It's an expectation by a very specific set of policymakers."

"Let me stress that there is no precise deadline for this extended period of time.

"As a matter of fact you can extract a reaction function and extract what would be a reasonable definition for an extended period of time. And you know that some of your colleagues have done that."

AMPLE LIQUIDITY

"Let me stress again, liquidity will remain abundant.

"It will stay ample as long as needed so as to guarantee full access to banks at a fixed rate. Full allotment will stay in place until at least July 2014 although there is no connection between this date and the extended period of time to which the forward guidance refers."

RATE HIKE EXPECTATIONS UNWARRANTED

"Current expectations of rate hikes in money markets are according to our assessment unwarranted.

"Current data confirm our baseline scenario and the risks are on the downside, so the evidence would have to be significantly better than our current baseline ... on the outlook for price stability in order for us to change guidance."

STRUCTURAL REFORMS

"States must step up the implementation of the necessary structural reforms so as to support competitiveness."

"These structural reforms are essential to break down the high levels of unemployment, particularly among the younger population."

CONFIRMING PREVIOUS FORWARD GUIDANCE

"Our monetary policy stance remains accommodative for as long as necessary. We have unanimously confirmed the forward guidance we gave last time."

"The elements (would) have to be significantly better than our current baseline scenario in order for us to change guidance."

DEFICIT REDUCTION

"Euro area countries should not unravel their efforts to reduce government budget deficits."

EURO ZONE ECONOMY

"Labour market conditions remain weak. Looking ahead to the remainder of the year and 2014, euro area growth should benefit from a gradual recovery in global demand.

"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 and financial market conditions and the related uncertainties may have the potential to negative affect economic conditions.

"Other downside risks include the possibility of weaker than expected domestic and global demand and insufficient implementation of structural reforms in euro area countries."

"At the same time recent confidence indicators based on survey data have shown further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity."

"In other words, it seems that the sign we are seeing now (on growth) confirm the baseline scenario of the ECB staff analysis for the second half of the year."

EFFECT OF EASY POLICY

"It thereby provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014."

RATES TO STAY LOW

"The Governing Council confirms that it expects the key ECB rates to remain at present or lower levels for an extended period of time."

PRICE PRESSURES

"Underlying price pressures in the euro area are expected to remain subdued over the medium term." (London Desk +44 207 542 4441)

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