FRANKFURT Feb 7 The European Central Bank left
interest rates unchanged on Thursday and President Mario Draghi
faced a grilling at a press conference over the ECB's
sensitivity to a sharp rise in the euro and his connection to an
Italian banking scandal.
Following are comments by Draghi at the news conference
after the bank's policy meeting.
ON MONTE PASCHI BANK SCANDAL
"You have had, for about a week and a half, a Banca d'Italia
detailed account on the website of the whole story where you
could see that Banca d'Italia has done everything it should and
appropriately and in time.
"(Also) the IMF has publicly stated that their preliminary
view is that the Bank of Italy took timely and appropriate
action within the limits of legal framework to address problems
at MPS. Oversight was close and supervisory action escalated
appropriately as MPS's problems became acute ..."
"Don't forget that it was me who signed both inspections. It
was Banca d'Italia that gave most of the papers and
documentation to the judiciary. The point is that if you have a
fraud, normally supervisors don't have police powers or
judiciary powers. So they look for supervision."
ASKED ABOUT POSSIBLE CUT IN REFI RATE
"We never ... pre-commit, but, as I said, our monetary
policy stance is accommodative, our overnight interest rates are
close to zero ... we are in the full allotment mode, ready to
offer liquidity to the banking system as needed.
"According to our estimates even after the second repayment
of the LTRO, the excess liquidity should remain well above 200
"I wouldn't make too much of the increase in Eonia which we
have seen recently because it may be due to a variety of
factors, some of which are actually structural, depending on
which banks have actually repaid the LTRO. So changing the
composition of the banks in Eonia you would have an effect on
the levels of Eonia itself and also you have other factors like
volatility. But ... I think I have said many times that our
monetary stance remains accommodative."
"This situation remains fragile, remains fragile and we see
that this fragility is signalled by the credit flows, which ...
"Also, if you look at the bond issuance, you clearly see
that, while large corporates that can issue bonds can do so and
finance themselves via capital markets, the SMEs that have to
finance themselves via the banking market, the banks, are
actually constrained. For them, credit is and remains tight."
IMPROVED FINANCIAL CONDITIONS
"We see cross-border activity increasing by other euro area
countries into the non-core countries, but also outside the euro
area into both core and non-core countries ...
"This gives a picture of certainly less tight financial
markets than there were a year ago. Let me also add that
corporate, corporate funding, non-banking corporate funding is
also having a good season. Corporate issuance has actually been
Asked how long full allotment mode will continue. Beyond
"There are plenty of signs that we are in full allotment
mode and ready to offer liquidity to the banking system as
EURO EXCHANGE RATE
"The appreciation is, in a sense, a sign of return of
confidence in the euro. But net of the confidence, the return of
confidence, exchange rates should reflect fundamentals and by
and large, both the nominal and the real effect of exchange
rates are on their - or about their long-term averages.
"However, as I said last time, the exchange rate is not a
policy target, but it is important for growth and price
stability and we certainly want to see whether the appreciation
is sustained will alter our risk assessment as far as price
stability is concerned.
"In the meantime, we will maintain our accommodative
monetary policy stance and we will closely monitor money market
IRISH BANK DEBT DEAL
"On Ireland, let me say this. There wasn't a decision to
take. We, I mean the Governing Council, unanimously took note of
the Irish operation and I am going to refer you to the Irish
government and the Irish Central Bank for the details of this
operation, which was designed and undertaken by the Irish
government and the Irish central bank. I can only say today that
we took note of this."
INFLATION RISKS BALANCED
"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 from weaker
economic activity and more recently, the appreciation of the
DOWNSIDE ECONOMIC RISKS
"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 in exports,
slow implementation of structural reforms in the euro area, as
well as geopolitical issues and imbalances in major
industrialized countries, which could both have an impact on
developments in global commodities and financial markets."
ACCOMMODATIVE MONETARY POLICY
Monetary policy "will remain accommodative with the full
allotment mode of liquidity provision."
"This reflects the improvement in financial market
confidence. Repayments ... 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 our monetary policy,
which will remain accommodative with the full allotment mode of
ECONOMY STILL WEAK, GRADUAL RECOVERY SEEN
"The economic weakness in the euro area is expected to
prevail in the early part of 2013.
"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."
INFLATION TO FALL IN COMING MONTHS
"HICP inflation rates have declined further, as anticipated
and are expected to fall below 2 percent in the coming months.
Over the policy-relevant horizon, inflationary pressures should
remain contained. The underlying pace of monetary expansion
continues to be subdued."
(London MPG Desk, +44 207 542 4441)