FRANKFURT Aug 7 The European Central Bank held
borrowing rates on Thursday as it pinned its hopes on lending
measures to bolster a struggling euro zone economy facing
further damage from the Ukraine conflict.
Following are comments by ECB President Mario Draghi at a
post-meeting news conference.
RELATIVE PRICE ADJUSTMENT
"What we define by relative price adjustment often is not a
relative price adjustment within certain sectors where simply
people just change prices in their catalogues. Often it reflects
different reality where entire sectors are going to be
annihilated, are going to be destroyed and new productions have
to take place, new sectors have to start their activity. And
this is a much longer process ... because it takes changes, it
takes movements of factors, people from one sector to another.
And we may well observe this phenomenon in the so-called
SANCTION-HIT RUSSIAN BANKS IN EURO ZONE
"These banks will be basically moving within the EU
regulations. But we will do something slightly more than that,
in a sense that these banks will have access to refinancing, but
they will be asked to announce their requirements first, and
second, approval will be granted if it has been confirmed that
the requested liquidity will not be used to circumvent EU
restrictive measures. So banks will have to explain why they
need the money, and the national central banks' inspectors,
supervisors will assess their statements."
STRUCTURAL REFORM LAGGARDS
"We have to distinguish between countries that have done
reforms and those that have done nothing or have done very
little reforms. You mentioned Germany.
"A completely different story is for countries that haven't
done reforms, or have done very little of them, where you've
been observing this weakness now for quarter after quarter, and
that's where you mentioned public investment. That's what I
meant by growth-friendly fiscal consolidation.
"These countries have to do growth-friendly fiscal
consolidation, meaning less taxes. We are talking about a part
of the world where taxation is the highest and these countries
"So lower taxes, lower current expenditure and possibly
higher government investment expenditure. But all this is
possible only if the better conditions are complemented by
WAGE GROWTH AND INFLATION
Asked about wage growth:
"Anything that would bring these inflation rates towards 2
percent is welcome but it's not for the ECB to determine wages
for the euro area, or for single countries."
BES NOT SYSTEMIC INCIDENT
How was the situation at Portuguese bank Banco Espirito
Santo (BES) able to happen? Does this not suggest weaknesses in
the monitoring system?
"I can't comment directly on individual banks, but what I can
say about what the Portuguese authorities have done in this case
- they certainly took swift action on that case both them and
the European competition arm worked very well together and
basically addressed a situation which could be potentially
"The market reaction both in Portugal and out of Portugal
basically confirmed this view. This view that the authorities
have been swift and effective and what could have been a
systemic incident is actually now considered ... an episode
which is restricted to this bank and to the owners of this
LOWER GROWTH POSSIBLE
"It is quite clear that if geopolitical risks materialise,
it is quite clear that the next two quarters will show lower
EURO/U.S. RATES' DIVERGENCE
"Markets have perceived that the euro, that monetary
policies in the euro and in the United States are and are going
to stay on a diverging path for a long period of time. Other
central banks have been reducing their exposure to the euro. And
if you look at how markets are expecting real rates to be for
the foreseeable future, meaning until 2017, no, 2019, current
expectations are that real rates will remain negative in the
euro area for a much longer time than they will be in the United
"I think that is one of the major developments that I would
see pick up from what happened in the last three, four months."
DECOUPLING FROM U.S.
Asked about use of QE as an 'insurance policy', Draghi said:
"The monetary policy announcements of last June have been
successful ... especially so the negative deposit rate ... We
have basically decoupled our monetary conditions from those of
the United States ... There has been a general compression in
EURO EXCHANGE RATE
"The fundamentals for a weaker exchange rate are today much
better than they were two or three months ago."
MONEY AND CREDIT
"On money and credit, I think there we see that the money
and credit dynamics remain weak. But there are better signs, or
say, signs that are less bad than we were used to observe in the
past. And they come essentially from two sources. From the
figures on money and loans to non-financial corporations. As
I've mentioned before you see that the deterioration in lending
is gradually smaller and smaller. And they also come from the
bank lending survey where the standards of tightness are
decreasing, even though they remain tight from an historical
perspective and the interesting thing for the first time we're
observing a pick-up in demand for loans."
"We haven't observed any decline on the medium to long-term
(inflation) expectations. Long-term expectations remain anchored
at 2 percent, other expectations remained anchored at the
previous levels. Short-term expectations indeed have declined."
HEIGHTENED GEOPOLITICAL RISK
"Geopolitical risks are heightened, are higher than they
were a few months ago. And some of them, like the situation in
Ukraine and Russia will have a greater impact on the euro area
than they ... have on other parts of the world.
"Now, it's hard to assess this impact at the beginning of
these crises. If one looks at the figures for trade or financial
flows, they would by and large reveal a picture of very limited
interconnections. Even as we go and look at the main financial
institutions, while we count the financial institutions that are
especially exposed to Russia (there are fewer) than a handful of
MORE ON PURCHASING ASSET-BACKED SECURITIES
"I can only reaffirm that the Governing Council is unanimous
in its commitment to also use unconventional measures like ABS
purchases, like QE, if our medium-term outlook for inflation
were to change...
"We have intensified preparations on the ABS, the various
committees of the ECB are now working on that...
"We are proceeding with our work, regardless of what the
timing is for possible regulatory changes in this area."
"We do expect a sizeable pick-up ... Market estimates would
seem to say that overall ... a pick-up (of) between 450 and 850
billion (euros) should materialise."
"We will closely monitor the repercussions of heightened
political risk and exchange rate developments."
PURCHASE OF ASSET-BACKED SECURITIES
"We have intensified preparatory work related to outright
purchases in the asset-backed securities market to enhance the
functioning of the monetary policy transmission mechanism."
"The targeted long-term refinancing operations (TLTROS) that
are to take place over the coming months will enhance our
(accommodative) monetary policy stance."
DOWNSIDE ECONOMIC RISKS
"The risks surrounding the economic outlook for the euro
area remain on the downside. In particular, heightened
geopolitical risk as well as developments in emerging market
economies and global financial markets may have the potential to
affect economic conditions negatively, including through effects
on energy prices and global demand for euro area products."
"The Governing Council is unanimous in its commitment to
also use unconventional instruments within its mandate should it
become necessary to further address the risks of too prolonged a
period of low inflation."
EASING MONETARY POLICY STANCE
"The monetary policy measures decided in early June have led
to an easing of the monetary policy stance. This is line with
our forward guidance and adequately reflects the outlook for the
euro area economy as well as the differences in terms of the
monetary policy cycle between major advanced economies."
"ECB interest rates will remain at the current level for an
extended period of time."
(EMEA MPG Desk +44 207 542 4441)