Draghi Says Monetary Stance Accommodative as Long as Needed

European Central Bank President Mario Draghi comments on interest rates, inflation, and the economy.

He made the remarks at a press conference in Frankfurt today after ECB policy makers left the benchmark interest rate at a record low of 0.50 percent.

On monetary policy stance:

“Looking ahead, our monetary policy stance will remain as accommodative for as long as necessary. The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term given the broad-based weakness in the real economy and subdued monetary dynamics.”

On forward guidance:

“The Governing Council took the unprecedented step to give forward guidance in a more explicit way than it did in the past.”

“The Governing Council was unanimous on this formulation.”

“What the Governing Council did today was to inject a downward bias in interest rates for the foreseeable future.”

“All in all, we said our exit is very distant.”

On the possibility of an interest rate cut:

“We had an extensive discussion about a possible interest rate cut.”

On the economic analysis:

“The remaining necessary balance sheet adjustments in public and private sectors will continue to weigh on economic activity.”

“Overall, euro area economic activity should stabilize and recover in the course of the year, albeit at a subdued pace.”

“The risks surrounding the outlook for euro area continue to be on the downside.”

“Other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries.”

“The economy is still going down but it’s going down at a slower pace.”

On the monetary analysis:

“Recent data confirm the subdued monetary and, in particular, credit dynamics.”

On price developments:

“Underlying price pressures in the euro area are expected to remain subdued in the medium term.”

“Annual inflation rates are expected to be subject to volatility.”

“Medium term inflation expectations remain firmly anchored in line with price stability.”

On ECB measures:

“Looking ahead our monetary policy stance will remain accommodative for as long as necessary.”

“In the period ahead we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.”

On bank lending:

“The annual rate of loans to the private sector remained negative.”

“The annual rate of loans to non-financial corporations weakened further.”

“There was strong net redemptions in short-term loans. This could reflect reduced demand for working capital against the background of weak order books in early spring. More generally, weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets.”

“In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets continues to decline further and that the resilience of banks is strengthened where needed.”

On banking supervision:

“The future Single Supervisory Mechanism and a Single Resolution Mechanism are crucial elements for moving towards re-integrating the banking system and therefore require swift implementation.

‘‘On backstops, I’ve said several times we don’t want to repeat the mistakes of the past.”

“Some people think that as soon as there is a shortfall in capital in the banking system that immediately these backstops would be used. That’s not the case.”

On the OMT:

“The OMT is ready to be active, it’s there. The conditions are known and it’s as effective a backstop as ever.”

“The OMT was not really addressed to substitute government action. It was meant to address tail risks in the euro area.”

“But let’s look at the facts. The OMT has produced universally acknowledged benefits for everybody.”

On negative deposit rates:

“We keep an open mind, we are technically ready and it’s been basically included in the options we have in the future.”

On Greece:

“The review is currently underway so it wouldn’t be appropriate for me to comment on speculations regarding the outcome.”

“Greece has achieved significant progress. We have to acknowledge this progress.”

On Portugal:

“I think Portugal has achieved very remarkable results.”

“It’s been quite a painful route, and the results that have been achieved have been quite significant, remarkable if not outstanding.”

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