FRANKFURT, (Reuters) - The European Central Bank left its policy stance unchanged as expected on Thursday, keeping a rate hike later this year on the table even as the euro zone economy suffers its biggest slowdown in half a decade.
Following are highlights of ECB President Mario Draghi’s comments at a press conference after the bank’s policy meeting.
Asked about speeding up hiring of his replacement and should the process be expedited, Draghi said:
“It’s a difficult answer and I am a little biased but I don’t have that sense - maybe people like me!”
“I don’t have that sense from the Governing Council.”
ECB WILL LOOK AT CONTINGENCIES
“Next will depend on whether we will end up assessing this slower growth as... persistent and then we will consider different contingencies and different elements.
“I don’t want to speculate about what contingency would call for a specific instrument, but if you look at the number of instruments we have in place now, we can conclude that it is not true that the ECB has run out of fuel or has run out of instruments.
“We have all our toolbox still available.”
“Economists say if we are to do TLTROs there should be a good case for monetary policy. In other words, we want to have TLTROs or LTROs to address cases of existing or likely fragmentation in the monetary policy space.
“We don’t want to be again in the situation where we were in 2012/13 and 14 where we lowered interest rates - policy interest rates - and this was not translated into lower lending rates.”
MARKET RATE PROJECTION
“When markets place the first rate hike in 2020, they are using the state contingent part of our forward guidance. They assess the economic prospects that way and it shows that they have understood our reaction function.”
BREXIT UNCERTAINTY ADDS TO ECONOMIC RISK
“If you compare potential disruption coming from Brexit for the aggregate of the euro zone ... it doesn’t seem to be extensive.
“But we have to take into account items like value chains (and that) ... some countries are more exposed to events in the Brexit case.”
“The Governing Council will give itself more time to assess whether all these risk factors have affected confidence and we are going to have another discussion in March when we will also have the new projections.”
RECESSION LIKELIHOOD LOW
“There was also quite, I would say, unanimity about assessing the likelihood of a recession as being low. Now, again, I don’t want to give numbers here, but some of them are very low, others are on the average since the last 60 years or 50 years. So in any event pretty low.”
“There was unanimity in saying that the key aspect to assess is the persistence of the general uncertainty as being produced by these factors. ...if all this were to persist, we should expect a longer weak momentum beyond the near term.”
“We were unanimous about acknowledging the weaker momentum and changing the balance of risk for growth. We are all in agreement on that.
“And we were unanimous in assessing the factors that have caused the slowdown; namely, first and foremost, there is an increase in general uncertainty.”
MULTILATERAL RULES DOUBTS
“This increase in general uncertainty is being produced by the threats of protectionism... actually extensive doubts about the multilateral rules that have underpinned our growth since the Second World War.”
BANKS STRONGER NOW
“By and large the banking sector is much stronger than before the beginning of the crisis.”
“There was unanimity in the Governing Council that the likelihood of a recession is low.”
“Several speakers actually raised this issue (of TLTROs), but no decision was taken. So it was because we didn’t discuss policies this time; we only were focused on the assessment.”
ASSESSMENT WILL HAVE POLICY IMPLICATIONS
“Quite clearly, the assessment will have implications about policy, but we didn’t discuss them.”
ASSESSMENT, NOT POLICY DISCUSSION
“Today, we didn’t discuss the (policy) implications (of changing balance of risk). Today’s meeting was essentially devoted to an assessment - where are we and why are we here, how long will the slowdown last, is the slowdown going to worsen or stay as a shallow lower path? These were the questions that were asked.”
UNDERLYING INFLATION MUTED
“Headline inflation is likely to decline further over the coming months. Measures of underlying inflation remain generally muted, but labor cost pressures are continuing to strengthen and broaden amid high levels of capacity utilization and tightening labor 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.”
“The near-term growth momentum is likely to be weaker than previously anticipated.”
SLOWER GLOBAL EXPANSION
“Looking ahead, the euro area expansion will continue to be supported by favorable financing conditions, further employment gains and rising wages, lower energy prices and the ongoing albeit somewhat slower expansion in global activity.”
SIGNIFICANT STIMULUS ESSENTIAL
“Significant monetary policy stimulus remains essential to support the further buildup 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 sizable stock of acquired assets.”
READY TO ADJUST ALL INSTRUMENTS
“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.”
“We intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase program 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.”
WAGE GROWTH UNDERPINS
“Supportive financing conditions, favorable labor 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 percent over the medium term.”
“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to the geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.”
“The persistence of uncertainties, in particular relating to geopolitical factors and the threat of protectionism, is weighing on economic sentiment.”
SOFT DEMAND OUTSIDE EURO ZONE
“The incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors.”
EMEA News Desk
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