HIGHLIGHTS-Draghi comments at ECB news conference
PARIS Oct 2 (Reuters) - The European Central Bank left interest rates unchanged on Wednesday, holding off any fresh policy action for now while it waits to see whether a fragile euro zone recovery strengthens.
Following are comments by ECB President Mario Draghi at a post-meeting news conference.
US GOVERNMENT SHUTDOWN
"The US budget shutdown is a risk if protracted. At the present time, the impression one has is that it will not be so. But essentially if it were to be protracted it's certainly a risk for the U.S. and the world recovery, so we have to have this present in our minds."
MORE ON LIQUIDITY
"The 200 billion euro figure was given in a different context. There is no stable relation between this figure and the behaviour of short-term money market rates.
"The excess liquidity figure depends on several factors, one of which is the state of fragmentation. The bigger is the fragmentation, the higher is the excess liquidity. So you can easily accept a lower figure without expecting any reaction on the money market rates if fragmentation decreases ..."
"I would urge not to make too much about two things about the relation between the excess liquidity and short-term money market rates and about the speed of repayment of the LTRO by the banking system."
"When you look at periods of instability, we see them in Greece, we see them in Portugal, we see them in Italy now, while instability may be hampering the hopes for a recovery in these countries, it doesn't really hurt the foundations of the euro zone as it used to do a few years ago. In other words, the euro zone and the euro is more resilient today than it was a few years ago."
MORE ON LIQUIDITY
"If I had to summarise what is the view of the governing council with respect to liquidity, I would say that nobody wants to have a liquidity accident standing between now and the recovery. And second, liquidity ought to be provided to the banking system as needed but it should not be a replacement for lack of capital."
"(On liquidity) let me restate what I said in the European parliament because it's quite telling. What I said is that we are ready to use all available instruments including an LTRO to make sure that short-term money market rates development are in line with our medium-term assessment of price stability. We have a vast array of instruments to this extent and we exclude no option in order to address the needs as it is most appropriate."
RATE CUT DISCUSSION
"There was a discussion, and as last time, some governors observed that improvements in the economy would not justify this discussion but other governors believed that the discussion was warranted. In the end, we decided to leave interest rates at the present level."
"The exchange rate is not a policy target for the ECB. The target for the ECB is medium-term price stability.
"However, the exchange rate is important for growth and for price stability, and we are certainly attentive to these developments."
BANKS AND CREDIT MARKETS
"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 fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed."
"Euro area economic activity should ... benefit from a gradual strengthening of external demand for exports."
FINANCIAL MARKETS, UNEMPLOYMENT
"The overall improvements in financial markets 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 around 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."
"Developments in industrial production data point to a 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."
MONEY MARKET CONDITIONS
"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."
"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."
"Underlying price pressures in the euro area are expected to remain subdued 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 percent over the medium term.
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