European Central Bank President Draghi News Conference (Text)Jana Randow
Following is a transcript of European Central Bank President Mario Draghi’s comments from his monthly news conference in Frankfurt today.
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Ladies and gentlemen, the vice president and I are very pleased to welcome you to our press conference. We’ll now report on the outcome of today’s meeting of the Governing Council.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. The latest information signals that the euro area economy continued its moderate recovery in the second quarter, with low rates of inflation and subdued monetary and credit growth.
At the same time, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent. The combination of monetary policy measures decided last month has led to a further easing of the monetary policy stance.
The monetary operations to take place over the coming months will add to this accommodation and will support bank lending. As our measures work their way through to the economy, they will contribute to a return of inflation rates to levels closer to 2 percent.
Concerning our forward guidance, the key ECB interest rates will remain at the present levels for an extended period of time in view of the current outlook for inflation. Moreover, the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation. We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.
As a follow-up to the decisions taken in early June, the Governing Council today also decided on specific modalities for the targeted longer-term refinancing operations, TLTROs. The aim of the TLTROs is to enhance the functioning of the monetary policy transmission mechanism by supporting lending to the real economy.
A press release on the modalities for the TLTROs will be published today at 3:30 p.m. As announced last month, we’ve also started to intensify preparatory work related to outright purchases in the ABS market to enhance the functioning of the monetary policy transmission mechanism.
Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2 percent, quarter on quarter, in the first quarter of this year. Economic indicators, including survey results available up to June, signal a continuation of the very gradual recovery in the second quarter of 2014.
Looking ahead, domestic demand should be supported by a number of factors, including the further accommodation in the monetary policy stance and the ongoing improvement in financing conditions. In addition, the progress made in fiscal consolidation and structural reforms, as well as the gains in real disposable income, should make a positive contribution to economic growth. Furthermore, demand for exports should benefit from the ongoing global recovery.
However, although labor markets have shown some further signs of improvement, unemployment remains high in the euro area and, overall, unutilized capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in May, and the necessary balance sheet adjustments in the public and private sectors are likely to continue to dampen the pace of economic recovery.
The risks surrounding the economic outlook for the euro area remain on the downside. In particular, geopolitical risks, 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. A further downside risk relates to insufficient structural reforms in euro area countries, as well as weaker-than-expected domestic demand.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.5 percent in June 2014, unchanged from May.
Although the main components, services price inflation -- among the main components, services price inflation increased from 1.1 percent in May to 1.3 percent in June, while food price inflation fell from 0.1 percent to minus 0.2 percent.
On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming months, before increasing gradually during 2015 and 2016. Meanwhile, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent.
The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, we will closely monitor the possible repercussions of geopolitical risks and exchange rate developments.
Turning to the monetary analysis, data for May 2014 continue to point to subdued underlying growth in broad money, M3. Annual growth in M3 was 1.0 percent in May, compared with 0.7 percent in April. The growth of the narrow monetary aggregate M1 moderated to 5.0 percent in May, after 5.2 percent in April. The increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, has recently been an important factor supporting annual M3 growth.
The annual rate of change of loans to nonfinancial corporations was minus 2.5 percent in May 2014, compared with minus 2.8 percent in April. Lending to nonfinancial corporations continues to be weak, reflecting the lagged relationship with the business cycle, credit risk, credit supply factors, and the ongoing adjustment of financial and nonfinancial sector balance sheets. The annual growth rate of loans to households was 0.5 percent in May 2014, broadly unchanged since the beginning of 2013.
Against the background of weak credit growth, the ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital and solvency positions, thereby supporting the scope for credit expansion during the next stages of the recovery.
To sum up, economic analysis indicates that the current low level of inflation should be followed by a gradual upward movement in HICP inflation rates towards levels closer to 2 percent. A cross-check with the signals from the monetary analysis confirms this picture.
As regards fiscal policies, substantial fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Important structural reforms have increased competitiveness and the adjustment capacity of countries’ labor and product markets. However, significant challenges remain.
To strengthen the foundations for sustainable growth and sound public finances, euro area countries should not unravel the progress made with fiscal consolidation, in line with the Stability and Growth Pact, and should proceed with structural reforms in the coming years. Fiscal consolidation should be designed in a growth-friendly manner, and structural reforms should focus on fostering private investment and job creation.
A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth, and to increasing the euro area’s resilience to shocks.
Finally, I wish to inform you that the Governing Council today announces that the frequency of our monetary policy meetings will change to a six-week cycle from January 2015. The reserve maintenance periods will be extended to six weeks to match the new schedule. Moreover, we announce our commitment to publish regular accounts of the monetary policy meetings, which is intended to start with the January 2015 meeting. A press release providing more details will be published today at 3:30 p.m., as well.
And now we are at your disposal for questions.
STAFF: Eva Taylor, Reuters, please.
QUESTION: Hello, President Draghi. You said earlier that you decided on some details for the TLTROs. Would you be so kind as to fill us in what these are? My second question is concerning the forward guidance. You said a couple of weeks ago that interest rates would remain long -- low for a longer period, and you referred to the extension of the full allotment until 2016, as well as to the four-year loans. What exactly did you mean? Thank you.
DRAGHI: Yeah. The second question, really, I don’t think I ever made an explicit link between the extension of the fixed-rate full allotment or the four years’ maturity for the lending.
And the period of time during which interest rates would remain at the present levels. I always said the interest rates will remain at present levels for an extended period of time. The length of this period of time depends on our medium-term outlook for inflation. That’s the only reference that -- that we should keep in mind.
On the LTRO -- on the TLTRO, actually, first of all, we mentioned the figure last time of 7 percent of the loan book of banks amounted to approximately to 400 billion, and the overall take-up could reach a maximum of 1 trillion. So that is what’s available for the banks today. Then it’s going to be up to them to make use of this opportunity, which, indeed, from a financing viewpoint, looks attractive.
Now, this is -- our internal analyses, our internal models have asked the question whether this -- this new measure, depending on its take-up, will have an impact on the inflation rate and on the growth rate of the euro area. And the answer the models gave is that they do have an impact. It’s going to be a significant impact. And it’s -- it will certainly be very helpful, of course, depending on the take-up -- will be very helpful of taking the inflation rate back to below, but close to 2 percent, in the horizon that we have discussed on other occasions.
As far as the details of the TLTROs, let me say just a few things, and then for further questions, I will ask you to -- first of all, I will -- I will ask you to read the press statement and also there will be a debriefing after the press conference by the staff of the ECB on all questions -- further questions you may ask.
So let me just go through some of the main elements of the TLTRO. First of all, participation. Banks can either participate individually or they may form a group if certain criteria are met. Second, I said this already. The counterparties -- the initial allowance -- the counterparties will be entitled to initial borrowing allowance equal to 7 percent of the total amount of their loans to the euro area, non-financial, private sector, excluding loans to households for house purchase, outstanding on April 30, 2014. Funds up to the initial allowance can be borrowed in two operations, which will be allotted on September 18 and December 11, 2014.
Then there is an additional allowance whereby banks can draw additional allowances under the program if they generate eligible lending over the first two years of the program in excess of a given benchmark. The additional allowance amounts to three times the difference between their actual eligible lending and their benchmark. The additional allowance can be borrowed in six TLTROs’ operations running from March 2015 to June 2016. So there are six TLTROs at quarterly intervals in this period of time.
The benchmark -- now, there will be two types of benchmarks, one for banks that are currently expanding their loan portfolio, so they are positive net lenders, and one for banks that have decreased their lending to the real economy, namely they’re negative net lenders, that is to say, banks that have been deleveraging in the last 12 months.
By devising these two benchmarks, we took into account that for some banks deleveraging is necessary. We certainly don’t want to discourage that. It’s part of the adjustment process towards a more sustainable finance structure. The reference period for benchmark, for both benchmarks is the 12-month window up to April 30, 2014.
The benchmark for positive net lenders, as I said, is the level of eligible loans outstanding on April 30, 2014. So further details will be given to you in the press conference, but basically you have two types of banks. In one case, the benchmark is their current level of lending, as calculated up to -- in the 12 months up to April 2014. And the second one is a decline in trend, and the benchmark will be with respect to this decline in trend.
However, let me tell you, this decline in trend will be a broken trend in the sense that after one year, the benchmark which is declining will become horizontal. So the two banks will be treated the same way after one year. And this is done to -- in a sense, also, to minimize potential distortions.
If this sounds a little complicated, you will certainly -- I think you’re right. And you will certainly get more from the press conference later on. But I’m confident the banks will quickly understand that -- that even though it’s complicated, it’s also quite attractive.
STAFF: Johanna Treeck?
QUESTION: Johanna Treeck, Market News. Mr. Draghi, you also said -- you reminded us that you’re intensifying your work on the ABS program or the potential program. Have that -- has that effort yielded any results? And could you update us on those?
And the second question is, if you are going to reduce your meetings to every six weeks, can you let us know how you are planning to sink this with the U.S. Federal Reserve...
DRAGHI: I’m sorry. Applying what?
QUESTION: You planning to synchronize this with the U.S. Federal Reserve?
QUESTION: And if you’re planning to speak before or decide before or after your colleagues in the U.S.? Thank you very much.
DRAGHI: Thank you. Thank you. No, we don’t plan to synchronize our meetings with anybody else, really. So...
DRAGHI: So we just -- no, we’ll -- we’ll have our new cycle and we -- we really -- we’re not going to think about other jurisdictions, monetary policy jurisdictions on this. On the first point, on the first question, first of all, the -- what’s the purpose of this program? The purpose of this program is to address the impairment in the bank lending channel, to address fragmentation, which translates itself into different funding access conditions and different risk premia across the euro area countries, members.
There are many aspects of the work that are currently being addressed. They are analytical, legal, accounting, and operational. There are several bodies that have been involved - - have been involved, in fact, already for quite some time in this work, which is, in fact, a revisitation of the overall segment -- market segment of securitizations. And they are the FSB, and then the Basel Committee and IOSCO, and then the commission, the European Commission.
The -- more incidentally, the Basel Committee and IOSCO have produced an announcement today about a broad study on this issue. What sort of ABS is the ECB interested in -- I would say, in promoting, in -- they should be -- I think I’ve said that last time -- they should be real ABS, namely we’re interested in ABS to -- as I said, to heal the impairment of the bank lending channel, so -- and we are interested because we want to channel lending to the real economy, and more specifically to the SMEs. So it should be real ABS. As I said, no CDO squares or financial derivatives or things like that in this consult (ph).
It should be simple. It should be simple, simple as it was securitization in Europe until a few years -- couple of years before the crisis. And actually, the most complex structures were certainly not generated in Europe. Banks and other European investors invested into these structures, but they were not by and large originated here.
And it should be transparent. One of the problems with why -- one of the reasons why securitization actually got rightly so a bad name was that some of these products were so complicated that they could not be priced correctly. And so that’s why transparency is going to be a key feature of this new -- this new concept.
Now, we -- we are not starting from zero. The key thing is to be able to have information about the content of these ABS’s.
And there are two initiatives that are already -- are already existing in the euro area would be extremely helpful. One is the loan level data that the ECB, the ESCB has, so that we have information about the single individual loans. And the second is the credit registers that exist in most euro area countries.
So the -- the ECB is working on this, and the relevant committees have been working on this to define eligibility, pricing, governance, and have been working on this now for some time.
Now, there is one -- one thing -- one thing that I read often is the following. Why are you confident that you actually can give some significant size to this market when there is no market for ABS? Now, that’s not true. As you’ve seen probably from the paper that we published together with the Bank of England, the outstanding amount of securitizations in the European Union at the end of 2013 was about 1.4 trillion, which is one-fifth of what’s in the U.S. But in the U.S., you have -- and it’s mostly in U.S., the market is guaranteed by the government, because you have the securitization related to real estate mortgages, housing mortgages.
In this case, there would be also -- the interest is in promoting securitization that could actually help, as I said before, lending to the real economy and to the SMEs. So to some extent, also, the size of the market is endogenous and it depends very much on certain conditions, one of which is regulation, the regulation after the crisis treated, I would say, good ABS’s and complex or bad ABS’s the same way, and they treated ABS more severely or differently with respect to assets that are very, very similar, both from a capital viewpoint, capital charges viewpoint and from the liquidity charges viewpoint.
So this is -- this is quite, I think, an interesting, potentially important development. This could help banks from two perspectives. One is the funding. And the other one is the capital relief that can be obtained through this channel. Of course, of course, if interest rates stay so low, the funding aspect will become less interesting, because banks can access funding at very low rates from central banks or other -- or even their own interbank markets.
On the -- on the capital relief, it very much will depend on the regulatory treatment and also on the risk retention, because we certainly want the intermediaries to retain some risk, because we learned painfully, I would say, from the crisis how all in all unadvisable is to -- not to have any risk retention by the intermediaries.
I think I’ll stop here. I’m sorry, I was a little too long on this, but...
STAFF: Claire Jones, Financial Times?
QUESTION: Claire Jones, Financial Times. First question. You noted that the change in the schedule of the meetings will be in company with the publication of minutes or accounts. Would it be possible to have a little bit more information on what sort of form those accounts will take and how you think they’re going to help your communications strategy?
And second issue, the Bank for International Settlements said over the weekend that central banks should tighten monetary policy sooner, rather than later to -- because they were contributing to what they referred as euphoric financial markets that were out of sync with developments in the real economy. Would it be possible to get your take on the BIS annual report, as well, please?
DRAGHI: Yeah, on the first, it will be too early. The Governing Council and the executive board of the ECB will be working on different -- what we call dry runs of these accounts, where we have to decide about lots of things, one of which is what we discussed on other occasions, namely if the votes should be -- should be with names or not, what sort of proposal is being made to the Governing Council. There are various -- there are actually quite many aspects to be a -- in order for the accounts to be a useful source of information.
So we’ll be working on that. And as -- as a concept we’ll be shaping, I will certainly keep you informed. And that’s one.
On the other point -- the other point is actually quite important. We discussed this report last week in Basel. And I would say the following, which probably is not going to surprise you, because it’s very much the same that other -- other -- other monetary policymakers in other jurisdictions have stated.
We think that our monetary policy is perfectly adequate to our stance. We have a mandate which is price stability, and the current stance of our monetary policy is geared to achieve this mandate. In order for -- however, we are at the same time quite -- quite -- quite sensitive to the formation creation of -- to the presence of potential financial stability risks. And there, we’ve taken a number of initiatives to address these risks, from the asset quality review to the stress test to the recapitalization of banks that are taking place now as we speak ahead of the results of the AQR.
Even in our TLTROs operations, if you are careful, you see that we’ve excluded lending to real estate -- for real estate purposes and to sovereigns. We’ve introduced a treatment for -- with prudential filters for treatment for sovereigns that is quite -- quite conservative in our -- in our comprehensive assessment.
And I think I can go on for a while on these measures that we’ve taken, so we are addressing these risks as we see them. But the bottom line of this is that the first line of defense against financial stability risks should be the macroprudential exercise, macroprudential tools. I don’t think that people would sort of agree with the raise in interest rates now for the ECB. It would be quite an interesting proposition, but is one that I wouldn’t share.
In fact, as I said, interest rates will stay low for an extended period of time, and the Governing Council is unanimous in its commitment to use also non-standard, unconventional measures to come with the risks of the too prolonged period of time of low inflation.
QUESTION: Thank you, Mr. President. Alessandro Speciale, Bloomberg News. On the TLTROs, do you -- is there some provisions in the way they are structured that wouldn’t allow banks to take the money for two years, use it, for example, to buy government bonds, and then we pay it back to the ECB?
And as a second question on rates, you said last month that you had reached the lower bound, but there could be some technical adjustments still. Could you elaborate a bit on that?
DRAGHI: Yeah. There certainly are provisions to this extent. If the bank doesn’t give evidence that they have produced some net lending with respect to the benchmark, they had to pay back. And you will get more about the exact features of this payback clause in the briefing post-press conference, but certainly that was a concern of the -- of the Governing Council and we’ve addressed with -- with a variety of means.
On the second point, yes, that’s what I said. That’s what I said, exactly, that the interest rates will stay at the present levels. Would there be -- would there -- could I exclude any technical adjustment in interest rates? Certainly not. We will still have that.
But it would be -- you see, one good thing about the negative deposit rate is that it helps to keep the corridor size unchanged. It has avoided the narrowing of the corridor which would be counterproductive for the functioning of money markets in the short term.
And it also -- so that’s the answer.
QUESTION: Alessandro (inaudible) over the past weeks or months, you’ve alluded several times to the exchange rate as an important factor for inflation being lower what was expected. Since you’ve started making these comments and after the measures in June, the exchange has actually not fallen very much. It may have increased.
Do you envisage taking any further measure to try and weaken the exchange rate? Or are you happy with current levels?
And the other question is about -- again, about the lengthening of the interval between Governing Council meetings to six weeks.
Is that because you feel you don’t need to be meeting so frequently, that your work is largely done now, and you will not have to intervene so frequently as you’ve done at the height of the crisis? Or what is the reason for that?
DRAGHI: Yeah, well, let me answer first the second question. The current situation is more -- well, is and has been for the last two, three years way more complex than it used to be a few years ago. And the right expectation of markets, of countries, people, public opinion is that we act to cope with this added -- this greater complexity.
Now, this expectation in monthly meetings would be sort of reproduced each and every month. The ECB cannot and should not act every month. And while I’m saying this, we certainly don’t think that our job is finished, not at all, not at all. Exactly I can restate that the Governing Council is unanimous in its commitment to use also unconventional measures after the Governing Council’s just reiterated its commitment to keep the interest rates at the present levels for an extended period of time. So our job isn’t finished. The issue is whether we should actually have each and every month the expectation for action.
Now, keep in mind that the expectation for action itself injects a certain market behavior, produces a certain market behavior which may have nothing or very little to do with fundamentals. So it could become a self-fulfilling expectation with consequences on the markets.
Our assessment on inflation is -- as you know, is medium to long term. So our outlook -- outlook is medium to long term. So our monetary policy measures are not taken on the basis of short-term -- short-term considerations. So from this viewpoint, the Governing Council has decided that a monthly frequency was simply just too tight in the -- in this situation.
And that’s the main reason.
There is also another reason which is more, I would say, logistical and that if you -- if one wants to have a published accounts of the meetings, it gets a little complicated to have an account if you have monthly meetings. It’s easier to have it if you have every six weeks, because it gives space for producing the account in a way that doesn’t disturb the expectations for further action and doesn’t, in a sense, confuse the reception of -- by the markets and by -- by the markets of the previous action that’s been taken, so you have to have an interval of time that is such that the published account doesn’t -- doesn’t actually create confusion with respect to the decisions that have been taken and doesn’t create confusion in the expectations about the decisions that we -- or might be taken in the future.
Now, the other point was about exchange rate. I will restate here, the exchange rate is not a policy target, but it’s become important, not any longer increasingly important. It’s definitely very important for our outlook of price stability. We’ve perhaps discussed this on other occasions in -- when you look at reasons for low inflation today, we have -- and you compare it with, say, three years ago, you have two stages.
In the first stage, for about a year, year-and-a-half, it was mostly the oil price and the food prices in general energy prices that contributed to -- for two-thirds to the fall of inflation rate from what it was there then than it is today. But then after one year-and-a-half was the exchange rate, because the contribution of energy decreased gradually and -- and it was the exchange rate.
So, of course, the two things can’t be added, because contribution on the exchange rate also works through the oil prices and energy prices, but certainly -- so it’s very important. And we certainly look at this with -- with great -- with great attention.
STAFF: I think we’ll have to take the French flag...
DRAGHI: The French flag.
STAFF: ... Jean Philippe Lecour (ph).
QUESTION: (OFF-MIKE) was to rise attention of you, Christine (ph), and then maybe a teaser for the match of today. Maybe you have a bet, Mr. President, who’s -- after two main euro areas countries, France and Germany, will win this match. That is not my first question.
So I’ve got two questions left. Regarding regulation, last week or this week, we had -- in U.S. states, from BNP pled guilty and then was sentenced to a very high fine of almost $9 billion, far above provisions of $1 billion of their books. So my question, with regards with the (inaudible) progress is, does that mean that more intention will be paid now from now -- to legal risk that several banks here in the euro area have to bear, especially when there is an interaction with U.S. authority? We know the extensive way of territory -- of low -- from this country.
And second question, more generally to (inaudible) and the stress tests to follow, there are some critics raising for banks and more surprisingly from Germany regulator this week, saying that (inaudible) priority and not the timing. And your reputation (inaudible) could be at stake. What do you say to this criticism?
DRAGHI: Thank you. Thank you. With respect to the first question, you understand my reluctance to get into the actual intricacies of the case. But the -- from our viewpoint, the viewpoint of a central bank, of a supervisor, the key thing is that the system is resilient to these risks. So certainly attention will be devoted to adequate provisions -- provisioning for these legal risks.
By the way, there is already provisioning for legal risks. So it -- the issue to see whether they’re adequate and -- and also certainly there will be attention to where these banks actually carry out their activities.
On -- on the second issue is, let me say, first of all, that things are actually going well with the single supervisory mechanism. I was told that there was a meeting by the task force on the comprehensive assessment with banks yesterday, and it was completely uncontroversial. Let me say also that we are enormously grateful to the national supervisors, without the work of which this effort could not be undertaken. I think this should be understood by all, by all.
The work is proceeding on schedule of the (inaudible) so I’m -- that’s the assessment, is positive about what’s -- what’s happened. But one has to understand that this is a very big and complex effort, because what we are -- what we are -- what they are trying to do is to establish a common supranational, supervisory standard that would produce a level playing field for all.
So, therefore, it’s both different from national practices and it’s distant from -- from the interest of the single countries. So on occasion, there may be disagreements, but all in all, the trend of this effort is -- has to be judged positively. Things are going well. And some disagreements have to be discounted because the effort is certainly complex. But it’s worthwhile, I would add. It’s really worth doing it.
QUESTION: Thank you (inaudible) Mr. Draghi, I have two questions. You repeated that you pay great attention to the exchange rate now, and as part of the measures you took a month ago, the euro hasn’t lost against the dollar. Obviously, investors are still much more concerned (inaudible) interested in the statements and measures by the Federal Reserve. To what extent -- I see your expression.
DRAGHI: No, I’m sorry. I missed what you said. It was?
QUESTION: Obviously, investors pay much more attention to the statements and measures by the Federal Reserve. To what extent does that worry you that the ECB still -- is still very much in the shadow of the Federal Reserve? And the second question, you said that you repeated the danger of a self-fulfilling prophecy due to the expectations of the financial market for the monthly meetings of the ECB council.
Did you personally -- or to what extent did you personally feel under pressure to take measures by these expectations, expectations that you created yourself?
DRAGHI: Yeah, thank you. No, it’s not a matter of pressure. I will respond to this. It’s not a matter of personal pressure or even collective pressure. It’s just the fact that the expectations by itself to be discussed and coped with at very tight frequency do generate market reactions that often have no relation with fundamentals. And that’s the key thing. It’s not so much a matter of pressure, because as you -- as you’ve seen, we act -- we act when it’s needed.
And so the other thing is about being in the shadow of the Fed. Well, if you look at the behavior of interest rates in the euro area since I first hinted that we would act and then -- which is, what, the beginning of May -- and then when I announced the measures in June, early June, you would see that, in fact, there isn’t much relationship between what happens here and what happens there.
The EONIA rates went down by -- went down by 12 basis points to 0.3 percent. The three months EURIBOR went down by 10 basis points, and the one-year OIS went down by 23 basis points.
So it’s -- it shows a fairly -- so far at least, the euro area has been capable of having a certain amount of difference between -- producing a certain amount of difference between the monetary policy and the consequences of monetary policy in the euro area, as opposed to the United States.
The exchange rate is a different issue. There, to some extent, there are many factors that influence the exchange rates, and I don’t want to dwell on each one of them. Certainly, the weakness of the European economy, the very low rate of inflation, the extremely low levels of interest rates do have an effect on the exchange rate, which isn’t -- it was -- it was -- if you look at the four months ago, it was higher, way higher than it is today. So -- but it’s a problem. It’s indeed, because it, as I said, affects the -- our objective of price stability.
STAFF: Brian Blackstone and then Mark Schroers.
QUESTION: Brian Blackstone with the Wall Street Journal. You mentioned a few times this unanimity to take non-standard measures if needed. You’ve talked -- you’ve said your work isn’t finished, if needed, you’ll do more. Having had a month to gauge the effects of what you did in June, letting it sink in, do you think that it’s less necessary to consider non-conventional measures now than it was a month ago?
And my second question, in terms of the sequencing of any additional moves, do you need to take the steps that you’ve already announced, the TLTROs, the ABS purchases if you do those, before you consider anything else? Or would you be willing to step in with a QE program, for example, even before these other -- these other measures kick in? Thank you.
DRAGHI: Thank you. Well, the answer to the second question is certainly, if our medium- to long-term assessment of no inflation were to change, we certainly would -- would -- would use this broad -- broad asset purchase program. And so we don’t have -- we don’t have a schedule.
But certainly, I mean, we first want to see the -- we first -- we certainly want to see the impact of this program. We are convinced that, as I said at the beginning, the impact is going to be substantial. And so I think someone asked me a question last time saying, what do you do next? And then I think I responded -- I mean, if I had announced that we would lower interest rates, would you ask when you lowered it again? We’re not going to say -- you see, that’s what I meant by continued self-fulfilling expectations before.
Maybe we should move to a six-month schedule, rather than six-week schedule.
But, no, the sequencing of the use of instruments is entirely dictated by the medium-term assessment of -- the assessment of medium-term outlook for inflation and price stability. There’s no other consideration.
QUESTION: Yes, thank you, Mark Schroers, Borsen-Zeitung. My first one is also on the schedule, the new schedule of the meetings. Does that have any implications for the rotation, as well, that -- which will start at the beginning of next year? So is there a need to adapt the rules?
And the second one is on -- also on the BIS report. The BIS also said that monetary policy is less effective in a balance sheet recession than -- balance sheet recession we see at the moment and that it could be -- could do more harm than good if central banks try to do only more of the same. Could you follow this argument? Or do you see a risk that you do too much, for example, to support credit? Thanks.
DRAGHI: Thank you. The answer to the first question is, yes. I mean, that’s why we -- we are coordinating this exactly with the beginning of the rotation period. And -- and the -- the choice of the dates and everything has been also made with an eye to the rotation period.
The second point is -- is -- the second point, I think to some extent I’ve answered before, but, first of all, we completely agree that monetary policy is less effective when you are at a lower bound. We don’t agree where -- when it says that monetary policy would do more harm than good, because as I said before, we think the monetary policy that’s geared to maintaining price stability has to be -- has to have the stance that the Governing Council has decided with the present monetary policy. And that same thing is happening -- has been said in all other monetary policy jurisdictions.
Are we ignoring the financial risks that could be produced because of the abundant liquidity, the very low risk spreads, risk premia, the very low spreads, the very narrow spreads? No, we are not. And I’ve listed a series of measures that we’ve already taken, and with the beginning of the -- with the entry into force of the Financial Stability Committee, there will be an explicit institutional attention to macroprudential tools in the -- in the ESCB, so by the ECB and also by the national central banks and by the supervisors.
So the -- so the ECB and the ESCB and the supervisors and the SSM have been actively working -- and the SRB, by the way, have all been actively working to address this issue of financial stability risks within a monetary policy stance that remains firmly geared to restore price stability.
QUESTION: Thank you (inaudible) my first question would be, again, regarding the euro. To what extent is the Governing Council concerned by the...
DRAGHI: I’m sorry. To what extent?
QUESTION: To what extent is the Governing Council concerned by the scenario that the euro might become a so-called funding currency in so-called (inaudible) rates, which may lead to its long-term depreciation, regardless of what actions the central bank takes?
And my second question, how can you be sure that the measures (inaudible) credit flow to certain countries (inaudible) ongoing fragmentation? Some hold the opinion that granting loans by lenders actually hinges more on demand than supply. Thank you.
DRAGHI: Thank you. On the -- on the second question, certainly, the -- we sort of ask this question, we asked this question all the time. I mean, just what are the -- what are the main factors that would explain the weak credit growth that we’ve been seeing now for quite -- quite a long time? And we have basically a variety of instruments on top of having our internal analysis. We also have two surveys. One is the survey done with the commission about the responses of the SMEs with respect to credit, and the second is the so-called bank lending survey, where it’s banks that are being asked, what do you think are the main factors for the present credit trends?
Now, the two surveys, both of them basically say that it’s both factors, both demand and supply. There is -- there has been some improvement on both accounts. However, the credit standards remain tighter on average than they used to be two years ago.
So we noticed some improvement. In fact, you probably have noticed that also there is an improvement in the data showing negative trend for growth, but less negative than it was a month ago, two months ago, three months ago, and so on. So you have - - you have a -- a factor whereby the momentum of being negative is slowing down.
And that’s -- also, looking at the disaggregated responses by the banks, you see that some -- some factors that have explained credit supply contraction in the past, like funding difficulties, for example, have seriously diminished or if not disappeared. The funding costs now have -- are by and large the same across the euro area.
So that is another interesting and positive phenomenon. There’s been a narrowing of fragmentation on the funding side. Also on the lending side, on the lending rates, there has been a narrowing of lending rates, but still the differences remain still sizable.
Within this picture, one has to -- also to look at another type of fragmentation, which is, in a sense, horizontal, namely large corporates pay much lower rates to borrow money from the banks than -- or from the capital markets than SMEs. And this is true everywhere, but, of course, it’s truer for stress countries. So there are -- I would say, to summarize this, there are certain very timid signs of improvement, but we are still -- we are still witnessing low -- low credit flows.
I may also add another thing, however, that when you -- when you add to bank credit flows, other sources of external financing by the companies namely debt issuance and -- on capital markets and equity issuance, you see that the decline in -- in bank lending has been compensated by equity and bond issuance, and this has been true now for several months.
Again, on one hand, this is positive. On the other, we know that SMEs aren’t doing any of these two things. In other words, usually an SME is not able to issue bonds on the capital market, and you don’t see much of equity issuance by SMEs in general. So that’s the -- what I can say about the credit markets.
On -- on the first question, I’m not sure I got your question, I have to confess. Can you repeat it, please?
QUESTION: Thank you. So my first question would be -- was some analysts pointed that the euro may become the funding currency in so-called (inaudible) and it would basically lead to its depreciation in the long-term horizon. So to what extent was the Governing Council concerned by this scenario in a discussion? Thank you.
DRAGHI: I have to say, we haven’t actually considered this as a -- as an explicit policy issue so far. Thank you.
STAFF: Thank you. Final question to (inaudible)
QUESTION: Mr. Draghi, two questions, one very brief. Does that mean (OFF-MIKE) does it mean (OFF-MIKE) other internal meetings on non-monetary affairs? Second question. The SRB has recently published a report (OFF-MIKE) can you hear me?
QUESTION: So I think the title was, is Europe overbanked? And basically they were affirming this. And to translate it, they said the European banking system is too fat and kind of dangerous. Do you agree?
DRAGHI: Yeah, on -- on the first point, the answer is, yes, we will continue having exactly the number of internal meetings as adopted to the new schedule. And also let me add that we have a new schedule for monetary policy meetings, but as a matter -- as it was -- has always been the case in the past, we can always meet when -- and if needed on top of the foreseen schedule.
On the -- I have seen that paper. And certainly it’s a very, very well written, designed and conceived paper. It’s certainly worthwhile considering it seriously, and we are all looking at that.
It’s -- you know, it’s something -- it’s very hard to say, do I agree or not? But certainly banks have especially -- well, all banks, really, are the product of history, of institutions, of a series of phenomena that have been stratifying one on top of another. So would it -- would it -- a significant restructuring effort going through mergers, acquisitions, resolutions, would this be -- would this be sort of inappropriate? One can’t really rule this out, the need for this. One can certainly not rule it out.
In -- so it’s something -- the paper definitely poses an interesting question that will require an appropriate analysis. Whether the ECB or the supervisors of the SRB are the -- are the right authorities to produce such a change, this is a different issue, and I don’t think they would be -- they would be the immediate actors in this process.
But I think analytically, the paper is interesting. It’s very interesting. I would agree with -- with that. Thank you.