FRANKFURT (Reuters) - The European Central Bank held its main interest rate at 0.75 percent on Thursday, deferring any cut in borrowing costs while it assesses the extent of the euro zone’s economic downturn and waits for a cue to use its new bond-purchase programme.
Following are comments by ECB President Mario Draghi at a news conference after the meeting.
“Economic activity in the euro area is expected to remain weak although it continues to be supported by our monetary policy stance and financial market confidence has visibly improved on the back of our decisions as regards Outright Monetary Transactions.”
Asked if recent economic developments mean ECB forecasts would be revised down in December:
“We’ll take these developments into account in our projections in December. There is a picture of weaker economies ... this is bound to be taken into account.”
“On Greece, we cannot do monetary financing - I repeat this. On the profits on the SMP holdings - we have already decided during the time of the first PSI what happens is that these profits naturally accrue to the central banks that are members of the of the euro system.”
“It’s up to the governments to decide whether they want to use these profits for Greece.”
”The ECB and the Governing Council certainly welcome the outcome of the vote yesterday. It’s a very important step that the Greek government and the Greek citizens have undertaken. It really represents progress from what it was a few months ago.
”Another vote is expected ... on Saturday on the budget. The governments will discuss the Greek situation next week as the Eurogroup has foreseen.
“The ECB ensures price stability and pursues the restoration of monetary policy transmission channels but cannot do monetary financing.”
”All these signs (from markets and the banking sector) are encouraging and by themselves add up to the equivalent of a further expansion of monetary policy because the financial markets are considerably easier now than they were 2 or 3 months ago.
”On a Spanish request I will decline any comment. It’s entirely in the hands of governments.
“The conditions of OMT are clear and we stand ready to act. OMT is as you know a fully effective backstop that is devised to remove the tail risk from the euro area and we do stand ready to act.”
”It’s the best response to all those who are saying: ‘You are flooding the world with liquidity.’ Now, you see that this is not happening. You see that in fact money is coming back and the balance sheet of the ECB will shrink down correspondingly and no consequence on inflation has taken place since when we decided on the LTRO.
”Whether banks return LTRO because they don’t lend it, because of risk-aversion or because credit demand is weak I‘m not in a position to say, but certainly this must be the main reasons, because here we’re talking about banks that don’t have capital constraints.
“The important thing with the LTROs is that we removed tail risks coming from the lack of funding that would have happened in the first quarter of this year. The objective has been achieved.”
”Visible progress is being made in the correction of unit labor costs. However, further measures to enhance labor market flexibility and mobility ... are warranted.
”As regards fiscal policies, there is clear evidence that consolidation efforts in euro area countries are bearing fruit. It is crucial that efforts are maintained to restore sound fiscal positions.
“Full compliance with the enforced EU fiscal and governance framework including the rapid implementation of the fiscal compact would send a strong signal to markets and strengthen confidence in the soundness of public finances.”
“We always discuss all instruments of monetary policy, but the Governing Council decided ... to keep interest rates unchanged. We have not discussed what we are going to do next year.”
”We have a return of flows from the rest of the world, in particular from U.S. money market funds, which was plus-16 percent in September, month-over-month, for the third consecutive month since the (OMT) announcement.
“Also, the form of lending has shifted considerably from secured to unsecured lending. Only 30 percent was secured, that’s the lowest data since March. This is a positive sign.”
“Another positive sign is that there has been some limited renewed dollar bond placement by euro area institutions. There has been a moderate pick-up in corporate issuance.”
”There have been a few issues of sovereign bonds by Ireland and Portugal. The funding plans of two large sovereigns like Italy and Spain are quasi-completed, if not completed. The holding of sovereign bonds of Spain and Italy has gone up, which we have not seen for a while.
“Finally the TARGET2 balances figure, which is another sign of the how the imbalances in the euro area are developing, that has been stabilizing now.”
“Both the euro area as a whole and the individual countries of the euro area - and I wouldn’t have made this statement a year ago - have a fundamental position which is way more balanced than the U.S., but also other countries - Japan or the UK.”
“The euro area has a current account balance which is basically in balance - zero. Debt, both as corporate debt and household debt, is relatively low, all over the euro area. Unit labor costs are on their way down. The fiscal consolidation that has taken place all over the euro area is amazing.”
“All this poises the euro area for a recovery which is probably going to be slow, gradual, but solid.”
ON REJECTION OF YVES MERSCH FOR ECB BOARD ON DIVERSITY GROUNDS
”Gender considerations are close to our minds and our hearts. We understand the European Parliament, where we always had excellent relations, has valid concerns about this. We really have open minds and open hearts.
”I just want to state that gender concerns are very important and also the ECB has been quite active on that.
“We are taking some actions and they are bearing fruit (at staff level) but we know we have to improve at management level.”
”Deflation is a generalized fall in price level across sectors and its self-sustaining. So far we have not seen signs of deflation not only at a euro area level but also at a country level.
“We should also not mix what is normal price adjustment due to the restoration of competitiveness in some of these countries ... with deflation.”
”Basically we see the price behavior in line with our objectives.
”Also consider that our monetary policy is already very accommodative. Real interest rates are negative in a large part of the euro area.
”Consider that we’ve taken several measures in the course of this year. Just think about how many things we have done. Several cuts in interest rates, having the reserve ratio, two LTROS for a gross amount of a trillion and so on.
”Then we have the OMT announcement which by itself produced an easing of financial market conditions.
“But we certainly continue monitoring economic activity and we stand ready to act. As I said we stand ready to act with OMTs. We also stand ready to act with the rest of standard monetary policy tools.”
”The impact of this is zero, but we take this mistake very seriously, and so the Governing Council has mandated the Euro System Audit Committee ... to assess the implementation of the collateral framework in the euro system.
“We will have an initial assessment of this at our next Governing Council (meeting), and then we will discuss whether further analysis or further action is needed.”
”We know that this is a bad equilibrium where, until three months ago, we had self-fulfilling expectations. At the same time, these countries have found themselves in this bad equilibrium because of the policy mistakes of the past or the lack of policy altogether.
“So at the origin of the fragmentation in the financial markets in the euro area we had, basically, policy mistakes, and they have to be corrected.”
“We haven’t discussed (about that).”
“In the context of measures to achieve an integrated financial framework, (the Governing Council) welcomes in particular the objective of agreeing on the legislative framework for single supervisory mechanism with a view to the SSM (Single Supervisory Mechanism) becoming operational in the course of 2013.”
”Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation is likely to remain above 2 percent for the remainder of 2012.
”They are expected to fall below that level in the course of next year and to remain in line with price stability over the policy horizon.
”The underlying pace of monetary expansion continues to be subdued.
“Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below but close to 2 percent over the medium term.” (London Desk +44 207 542 4441)