Draghi Says a Few ECB Council Members Wanted to Cut Rate

European Central Bank President Mario Draghi comments on monetary policy and the euro-region’s debt crisis.

He made the remarks at a press conference in Frankfurt today after the ECB kept its benchmark interest rate unchanged at a record low of 1 percent.

On monetary policy:

“Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. While inflation rates are likely to stay above 2 percent for the remainder of 2012, over the policy-relevant horizon we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro-area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. At the same time, economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment, giving rise to increased downside risks to the economic outlook.”

“In previous months we have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy.”

“Keeping in mind that all our non-standard monetary policy measures are temporary in nature, we will monitor further developments closely and ensure medium-term price stability for the euro area by acting in a firm and timely manner.”

“The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced.”

On interest rates:

“Price signals in this situation have a relatively limited immediate effect.”

“The context is one where you have liquidity constraints and tensions in financial markets, so one has to appreciate the effectiveness of these conventional measures in this new context.”

On economic outlook:

“The baseline scenario in our staff projections didn’t change. At the same time, we have to acknowledge that the baseline scenario is based on assumptions. After the cut-off date of these projections” we had “confidence indicators and they all point in a direction that wasn’t upward.” At the same time, hard data were more positive. “You have conflicting signals. We are fully aware that the most recent soft data are on the downside. We monitor all developments closely and we stand ready to act.”

“We believe that the potential weakening of the economy might be due to a credit contraction that really started last year.”

On today’s decision:

“It was taken, I would say, by very broad consensus.”

“A few members would have preferred to have a rate cut today. I’d say not many.”

On liquidity operations:

“We think it’s effective but we have to be aware that the context is one where you have liquidity constraints and tensions in financial markets. We’ve done two LTROs. These have prevented other problems, more serious credit crunches, possibly more serious disruptions in the banking sector. Many of the stress indicators are now slightly better than they were in November.”

“The issue now is whether these LTROs would actually be effective. There is plenty of liquidity in some parts of the euro area and shortages in other parts. I don’t think it would be right for monetary policy to fill other institutions’ lack of action.”

“We have to assess exactly what the funding conditions of the banks are. I don’t think the opportunities provided by the second LTRO have fully been exploited. We look how the funding conditions proceed and then we will make up our minds. The ECB will keep the liquidity lines open to solvent banks and we have to see the collateral.”

On EU working group on euro future:

“I don’t think this would present any threat to ECB independence. Work is in progress. This work is the beginning of a process that would give substance to a European vision for the medium and long term.”

On bailouts:

“I don’t view it as the ECB’s task to push governments into doing something. It’s their decision whether they access the EFSF or not.”

On ECB action after the EU summit:

“There’s never been a quid pro quo. There is no horse trading here.”

“The fiscal compact is a major important step. Countries have undertaken an enormous effort and have achieved considerable progress. Now they have to continue.”

“The benefits would be realized, achieved if we were to clarify what the euro would be in five, 10 years time. That’s what the efforts of the leaders are geared to.”

On upcoming G-20 meeting:

“Europe may have some responsibility but these countries have their own problems which are still not addressed. It’s not balanced to say that only Europe has a responsibility. All countries have to work together and they first and foremost have to address their own problems and then they should worry about the spillover or the lack of spillover to the rest of the economies.”

On whether the situation resembles that following the collapse of Lehman Brothers Holdings Inc.:

“We are rightly alarmed that there has been stress in the markets and some indices have pointed to a stabilization of financial markets until three weeks ago. But I think we’re still a far way away from that situation.”

On ESM lending directly to banks:

“The ESM could recapitalize banks without the debt of the country going up. But there are certain other dimensions of this which should be appreciated. The ESM treaty doesn’t allow this. The ESM would then take up shares of the banks that it recapitalizes. Do you really want an ESM that is a shareholder? Have we designed the ESM to become a shareholder of banks in the euro area? The ESM wasn’t born for that.”

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