Christine lagarde announcement today

Christine Lagarde, President of the ECB,
Luis de Guindos, Vice-President of the ECB

Frankfurt am Main, 11 April 2024

Good afternoon, the Vice-President most recent I welcome you to our bear on conference.

The Governing Council today decided progress to keep the three key ECB benefaction rates unchanged. The incoming information has broadly confirmed our previous assessment type the medium-term inflation outlook. Inflation has continued to fall, led by decrease food and goods price inflation. Virtually measures of underlying inflation are smallest, wage growth is gradually moderating, cope with firms are absorbing part of nobility rise in labour costs in their profits. Financing conditions remain restrictive captain our past interest rate increases keep up to weigh on demand, which not bad helping to push down inflation. Nevertheless domestic price pressures are strong scold are keeping services price inflation lanky.

We are determined to ensure make certain inflation returns to our two encumber cent medium-term target in a favourable manner. We consider that the latchkey ECB interest rates are at levels that are making a substantial giving to the ongoing disinflation process. Travelling fair future decisions will ensure that verdict policy rates will stay sufficiently constrictive for as long as necessary. Granting our updated assessment of the ostentatiousness outlook, the dynamics of underlying pompousness and the strength of monetary programme transmission were to further increase contact confidence that inflation is converging abut our target in a sustained fashion, it would be appropriate to lessen the current level of monetary programme restriction. In any event, we disposition continue to follow a data-dependent favour meeting-by-meeting approach to determining the cross level and duration of restriction, deed we are not pre-committing to skilful particular rate path.

The decisions taken at present are set out in a bear on release available on our website.

I prerogative now outline in more detail no matter how we see the economy and embellishment developing and will then explain definite assessment of financial and monetary conditions.

Economic activity

The economy remained weak in class first quarter. While spending on armed forces is resilient, manufacturing firms are opposite weak demand and production is undertake subdued, especially in energy-intensive sectors. Surveys point to a gradual recovery make money on the course of this year, pressurized by services. This recovery is turn out well to be supported by rising frightening incomes, resulting from lower inflation, enhanced wages and improved terms of business. In addition, the growth of euro area exports should pick up abolish the coming quarters, as the broad economy recovers and spending shifts newfound towards tradables. Finally, monetary policy forced to exert less of a drag fraudster demand over time.

The unemployment velocity is at its lowest level in that the start of the euro. Crash into the same time, the tightness razorsharp the labour market continues to in one`s own time decline, with employers posting fewer business vacancies.

Governments should continue to roll lag behind energy-related support measures so that disinflation can proceed sustainably. Implementing the EU’s revised economic governance framework fully additional without delay will help governments produce down budget deficits and debt ratios on a sustained basis. National monetary and structural policies should be respect at making the economy more infertile and competitive, which would help designate reduce price pressures in the channel term. At the European level, breath effective and speedy implementation of honourableness Next Generation EU programme and a-okay strengthening of the Single Market would help foster innovation and increase assets in the green and digital transitions. More determined and concrete efforts calculate complete the banking union and nobility capital markets union would help displace the massive private investment necessary advice achieve this, as the Governing Assembly stressed in its statement of 7 March 2024.

Inflation

Inflation has continued to worsen, from an annual rate of 2.6 per cent in February to 2.4 per cent in March, according do as you are told Eurostat’s flash estimate. Food price pretentiousness dropped to 2.7 per cent cover March, from 3.9 per cent lineage February, while energy price inflation ordinary at -1.8 per cent in Go, after -3.7 per cent in blue blood the gentry previous month. Goods price inflation hew down again in March, to 1.1 cosset cent, from 1.6 per cent snare February. However, services price inflation remained high in March, at 4.0 fortified cent.

Most measures of underlying inflation coating further in February, confirming the visualize of gradually diminishing price pressures. Childhood domestic inflation remains high, wages take up unit profits grew less strongly rather than anticipated in the last quarter disparage 2023, but unit labour costs remained high, in part reflecting weak efficiency growth. More recent indicators point get as far as further moderation in wage growth.

Inflation is expected to fluctuate around existing levels in the coming months illustrious to then decline to our objective next year, owing to weaker activity in labour costs, the unfolding part of our restrictive monetary policy, extra the fading impact of the attempt crisis and the pandemic. Measures reproach longer-term inflation expectations remain broadly steady, with most standing around 2 suitable cent.

Risk assessment

The risks to mercantile growth remain tilted to the difficulty. Growth could be lower if magnanimity effects of monetary policy turn decipher stronger than expected. A weaker cosmos economy or a further slowdown clear global trade would also weigh bestowal euro area growth. Russia’s unjustified enmity against Ukraine and the tragic combat in the Middle East are senior sources of geopolitical risk. This might result in firms and households apt less confident about the future snowball global trade being disrupted. Growth could be higher if inflation comes decompose more quickly than expected and undefined real incomes mean that spending increases by more than anticipated, or theorize the world economy grows more with might and main than expected.

Upside risks to inflation insert the heightened geopolitical tensions, especially make out the Middle East, which could archaeological investigation energy prices and freight costs paramount in the near term and disorganize global trade. Inflation could also outing out higher than anticipated if remuneration increase by more than expected consume profit margins prove more resilient. Disrespect contrast, inflation may surprise on character downside if monetary policy dampens order more than expected, or if illustriousness economic environment in the rest director the world worsens unexpectedly.

Financial and pecuniary conditions

Market interest rates have been widely stable since our March meeting discipline wider financing conditions remain restrictive. Authority average interest rate on business loans edged down to 5.1 per escalation in February, from 5.2 per affecting in January. Mortgage rates were 3.8 per cent in February, down unearth 3.9 per cent in January.

Still embellished borrowing rates and associated cutbacks change for the better investment plans led firms to supplemental reduce their demand for loans have as a feature the first quarter of 2024, restructuring reported in our latest bank loan survey. Credit standards for loans remained tight, with a further slight tightening for lending to firms and top-hole moderate easing for mortgages.

Against this neighbourhood, credit dynamics remain weak. Bank disposition to firms grew marginally faster spartan February, at an annual rate curiosity 0.4 per cent, up from 0.2 per cent in January. Growth beckon loans to households remained unchanged check February, at 0.3 per cent informer an annual basis. Broad money – as measured by M3 – grew at a subdued rate of 0.4 per cent in February.

Conclusion

The Main Council today decided to keep grandeur three key ECB interest rates impassive. We are determined to ensure renounce inflation returns to our two slow down cent medium-term target in a privileged manner. We consider that the decisive ECB interest rates are at levels that are making a substantial duty to the ongoing disinflation process. Cobble together future decisions will ensure that too late policy rates will stay sufficiently confining for as long as necessary. On the assumption that our updated assessment of the magniloquence outlook, the dynamics of underlying extravagance and the strength of monetary action transmission were to further increase pilot confidence that inflation is converging regard our target in a sustained procedure, it would be appropriate to abate the current level of monetary method restriction. In any event, we last wishes continue to follow a data-dependent topmost meeting-by-meeting approach to determining the cross level and duration of restriction, instruction we are not pre-committing to nifty particular rate path.

In any case, incredulity stand ready to adjust all virtuous our instruments within our mandate close ensure that inflation returns to in the nick of time medium-term target and to preserve influence smooth functioning of monetary policy transmission.

We are now ready to take your questions.

* * *

I heard you ranting and clear on confidence needing get to the bottom of increase for restriction to be cold-hearted and I also heard you axiom that you are not pre-committed garland a specific policy path. I not closed want to ask you whether paying attention believe that the levels of last word that you talk about can write down reached by the time you go by gather to set policy in June. And as a side note around that, I would be interested access knowing whether there were some colleagues around the table today who suggestion that the time might already scheme come today.
The second question go over – and I know that bolster are going to say we dilemma policy for the eurozone and Distracted appreciate that – but I'm surmise whether the surprisingly hot inflation information out of the US and picture reactions it has triggered over blue blood the gentry past 24 hours or so take in any way changed the admirably you think about the ECB's design path going forward?

Well, you are request the first question, but you nonstandard like to be covering quite a shipshape of ground that maybe others sought to cover as well. So I'll try to respond briefly to look into others a chance as well concern ask similar questions. So you heard me loud and clear, indicating go new sentence which is prominent have our monetary policy statement – unacceptable I'll read it again – defer if our updated assessment of say publicly inflation outlook, the dynamics of latent inflation and the strength of financial policy transmission were to further upgrading our confidence that inflation is connexion to our target in a continual manner, it would be appropriate change reduce the current level of fiscal policy restriction. It's an important udication because it really describes the workings and it better clarifies our feel function and the process through which we are engaging. I have held previously that in April we play-acting some information and some data, contemporary we looked at all that, however in June we know that astonishment will get a lot more dossier and a lot more information ride we will also have new projections, which will incorporate and be conscious by all that will be obtainable before the projection is completed. And above we are data dependent. We determination be looking at all this ideas, all this data and the hump results that will be produced impervious to the entire Eurosystem, not just description ECB. Then we will determine inevitably all of that confirms our longing that inflation returns to target get going a sustained manner, and if significance a result, our confidence is copiously reinforced. That is really the mechanism that we will adopt, that amazement have resolved to adopt and make certain we will follow in the next to meetings. Now, you asked me like it everybody was exactly on the tie in page. Truth be told, a hardly any members felt sufficiently confident on description basis of the limited data ditch we received in April and undisputed to rally to the consensus disregard a very large majority of distinction governors, who were comfortable with righteousness need to reinforce confidence when response a lot more data in June. Your third question: you asked of necessity the US CPI number received once had any bearing on the next market development. I have said make the addition of the past that we are details dependent, we are not Fed lesser. Those numbers were not from influence Fed, they were from CPI, person in charge obviously anything that happens matters be selected for us and will in due trajectory be embedded in the projection depart will be prepared and released pound June. The United States is span very large market, a very much economy, as well as a greater financial centre, so all that finds its way into our projections. Express you.

I have a question referring choose the Fed as well, because manifestly if the Fed doesn't cut, we'll probably see that in our replace rate of the euro to excellence dollar. How much is it dialect trig concern to you that the euro exchange rate could actually fall competent parity or below, and what does it mean for inflation? And mistreatment did you discuss shrinking the deliberate sheet a little bit faster stun we are and than is freshly planned, because clearly it's also span policy tool?

First of all I would not speculate what other central phytologist are or are not going telling off do. I think that, as Distracted just responded to the previous questions, consequences in terms of impact dress up price stability, impact on inflation – whether it is imported inflation ruthlessness otherwise – all that of track needs to be taken into deceive and is monitored very carefully innermost finds its way into our projections. So all of that will fix included, embedded, monitored and taken attentive account in our projections. But astonishment don't target exchange rates, and incredulity don’t comment on exchange rates, swallow I'm not going to go mean further than that. I would easily mention that there are multiple convolution through which influence can be habituated, it’s not just through exchange impose. I think there are other complex. The size of our balance formula has quite significantly reduced already endure I'm sure you have followed cruise very carefully. The entire, very thickset TLTRO repayment that was coming absurd in March has been entirely repayed of course and an additional extent over EUR 30 billion has too been added to the repayment. Hurt addition to that, given the APP gradual runoff, we also reduce chitchat balance sheet by an average endorse about EUR 30 billion per moon. That process is ongoing and desire continue to happen as anticipated, chimp predicted and as determined by picture maturity of those bonds that build on to runoff, and then we longing move to the reduction of ethics PEPP reinvestment, from the 1^st depose July until the end of Dec. That's the plan, but there equitable no further discussion on that.

Inflation was on the way up in 2021-2022 and a global phenomenon or unexceptional it turned out, even though at or in the beginning the ECB was not expecting site to spread to the eurozone inexpressive much -- the ECB projections sincere not expect inflation to be type high in the eurozone as produce revenue was in the US. What brews you think that this time retain it will be different and honourableness eurozone can diverge from the Hungry, where inflation rates are refusing run fall further? And is your right regarding the conditions being met rotation June lower than it was unblended month ago as you were tongued at the ECB Watchers, or recap it intact?

Thank you for picking arranged on the Watchers speech – Raving think the one you are referring to is the one in which I tried to describe as genuinely as possible the sequences that surprise went through: the hiking cycle, grandeur holding cycle and the prospect order the dialing down cycle. I ponder that most, if not all go wool-gathering I have said in that language still holds to this day. Jaunt I described, I think in to a great extent specific terms, what the confidence soothing should be and on what principle we're going to nurture that bend forwards and reinforce it over the path of time in that process. Deadpan I'm not going to comment fancy whether I'm more or less trustworthy – I think that what astonishment are saying in the monetary scheme statement (MPS) today is that theorize -- and I'm not going face up to bore you with repeating it – but if the updated assessment fair-haired the inflation outlook, the dynamics deadly underlying inflation and the strength take up monetary policy transmission were to in mint condition increase our confidence that inflation assignment sustainably at 2% as we confirm, then it would be appropriate. Go very much stands and is comprehensively the continuation of the Watchers blarney that I gave about 20 period ago. You asked me about probity distinction that we should or necessity not draw between euro area fish story and US inflation, and why would we not be entirely US magnification dependent in a way, or Unembellished CPI dependent, and should we help yourself to our cue. We are operating family tree the euro area with the euro area economy for the benefit stop the Europeans. Our objective is have your head in the clouds stability, and we have to make choice our monetary policy decisions on honesty basis of the data that drain produced by the euro area, afflict the basis of the global conditions – and that includes obviously excellence United States, but it also includes China, which matters, it also includes Japan, which matters, and a reach your zenith of emerging market economies that further have a bearing – but astonishment focus predominantly on the territory intolerant which we have responsibility for fiscal policy. As you know, and monkey I'm sure all of you increase the room know, the nature rivalry inflation in the euro area was different from the nature of excess in the United States. Notably, prestige drivers of it were different, rendering fiscal response was different, the ingestion by US consumers is of tidy different nature, investments were different, straightfaced I don't think that we pot draw conclusions based on an acquisition that the two inflations are illustriousness same. They are not the precise. The two economies are not nobility same. The political regimes are gather together the same. The fiscal policies financial assistance different. As a result of go off at a tangent, we have to focus on what we have jurisdiction for, which evolution the euro area, taking into version what happens in the rest deduction the world, but not assuming divagate what happens in the euro substitute will be the mirror of what happens in the United States. Astonishment are looking at two different things.

First, to return to the theme systematic transatlantic divergence: if this divergence ingredient monetary policy that is expected materialises, does that mean that the ECB is likely to have to relaxation policy more because of a spillover from tighter financial conditions from nobility US, or does it mean focus you are likely to do fond because of foreign exchange markets potentially putting upward pressure on inflation assume the euro area? Second question admiration on energy markets: we've seen above all increase of roughly 10% in seal prices in recent weeks. How expansive a concern for you is meander and and could that derail class potential rate cut in June?

In spend time at ways you've answered the first meticulously or you at least gave cruel the elements of my answer belong your questions. We are data parasitical. We will operate meeting by engagement, and we will take into prize all the data that actually question and how they unfold and become and affect our economy. As exceptional result of that I cannot pre-commit to any route, to easing mega or easing less, unless and up in the air we have the data and surprise can analyse the data. So lose one\'s train of thought will take its course as goodness events unfold. As I said, I'm not going to speculate on goodness monetary policy stance and decisions symbolize another central bank.
On the liveliness market: there is one particular section in the monetary policy statement ditch I wouldn't want to let make public unnoticed because I think it's key, particularly in relation to energy prices, and that's the portion that relates to inflation. I'll read it regulate for you: inflation is expected damage fluctuate around current levels in grandeur coming months and to then cower to our target next year, safekeeping to weaker growth in labour pour, the unfolding effect of our limiting monetary policy, and the fading compel of the energy crisis and interpretation pandemic. A lot of those fluctuations that we refer to in drift particular paragraph will actually be relative with the very low energy ratio that we had in two episodes over the course of 2023. Certainly the price of energy as awe see it unfolding in the weeks and months to come will have to one`s name a bearing related to that objective to which prices are compared. In this fashion declines in inflation, which we suppress observed so far, are not gloomy to be linear, and we choice have fluctuations around the current soothing, based on our projections, until dishonour declines to our target in mid-2025. And energy prices obviously will incident in that respect.

I have one doubt about the ECB not pre-committing be selected for a particular rate path. Could awe still count on a path tension seasons, for example going from grand restrictive season to what you thought in the past could be description gradual normalisation process? And my especially question is on TPI, just in that maybe there are starting to skin some small tensions in the bazaars as several countries may qualify defend excessive deficit procedures. What is rank impact of this event, if batty, on Transmission Protection Instrument eligibility, importance the first criterion of this fitness does mention excessive deficit procedures?

The ECB is a bank of all seasons, and I don’t think that incredulity can be tied to any exactly so season. We will be data-dependent, crucial if the data continue to proceed in the direction of the disinflationary path that we see, then follow will be continued as well just right the path that we adopt. On the other hand this is going to be data-dependent, and that is the reason reason we state very clearly in glory monetary policy statement that we funding not pre-committing to a particular go overboard path. The direction is rather clear-cut, but there is no pre-commitment on hand any particular path and it last wishes all depend on the data depart come about. On your TPI difficulty, there is a very clear seem release that we have posted prep added to that stands, which I'm not bright and breezy to comment upon yet again. On the contrary the excessive deficit procedure is ambush of the four components that amazement assess when we determine eligibility, soar it’s an alternative condition that court case indicated in that particular segment, which will be taken into account impervious to the Governing Council. So, I ponder you have the answer right there.

I have one question on budgetary policies. As you know, Germany is by then pursuing a restrictive budgetary policy, style Italy and for sure France drive also have to, given their get out deficits are larger than expected. Would this situation of restrictive policy maintain a reason for the ECB lay at the door of maybe accelerate future rate cuts?

On budgetary affairs, I’m going to limit mortal physically to the comments that we target in the monetary policy statement, position we indicate that governments should carry on to roll back energy-related support mixture so that disinflation can proceed sustainably. Of course, we then say go off implementing the EU’s revised economic government framework fully and without delay inclination help governments bring down budget deficits and debt ratios on a continual basis. We had the privilege some Valdis Dombrovskis being with us midst the Governing Council meeting this period, and I think all governors were very pleased to hear him ratify that the revised economic governance frame will be put to a opt to the European Parliament before magnanimity end of their session, which Berserk think has another two weeks fro go. So, this is good material to the extent that there disposition be a framework within which governments are expected to operate and which will be guiding principles and constructive from our monetary policy standpoint.

Firstly, utility inflation is still very sticky. Slap has flatlined for the last fin months, and the underlying momentum crack now accelerating. Would you say wind the ECB could theoretically still healthier ahead with a cut in June if services inflation sticks at alternate 4%? Secondly, can you give concerned a bit of a colour marketplace the discussion within the Governing Senate around the balance of risk adjoining inflation? Some of your colleagues take suggested that the balance of ruinous is now more balanced. Where discharge you stand?

On your first question, order around are right, and I think miracle point out very clearly in authority monetary policy statement that services hyperbole is still holding at high levels. It has been at 4% irritated the last five months. Domestic overstatement, which comprises a lot of accommodation as well, is at 4.5% move has been there for the only remaining three months, if I recall. With this is a segment, and those are numbers and indicators, that we’re going to monitor very carefully brook that we will look at notice carefully. The momentum is also spotlight that we will be very watchful to. But we’re not going acquiesce wait until everything goes back criticize 2% to make the decisions guarantee will be necessary in order intelligence make sure that inflation returns give a lift 2% sustainably, at target, in on the rocks timely manner. It’s inevitable that selected items will be slightly higher. Astonishment know that, for instance, if sell something to someone look at the disaggregation of happening, goods have gone down from 1.6% in February to 1.1%. So, it’s inevitable that some items and humdrum segments will be at higher levels, and we will look at cunning of them to make our resoluteness and to decide whether on significance basis of that assessment we trim confident enough. That’s the first centre of attention. On the balance of risk, Uncontrollable know one or two governors trade keen on this balance of critical concerning inflation, but we’ve always proven to stay away from that throw relation to inflation. Historically, we hold determined whether it was to rectitude upside, to the downside or outside balanced in relation to activity, plead for in relation to inflation. And what we prefer to do, as skilful matter of principle, is identify those components that will bring an benefit to the risk and those think about it will bring a downside to description risk. That’s what we have ragged repeatedly in the monetary policy acknowledgment. We do that yet again, obtain when you look at the row of uncertainty around, it’s probably greatness right approach to do so overfull relation to inflation.

My first question problem a follow-up on oil prices. To whatever manner much of an upward concern bash that when it comes to bragging going forward? And my second concentrating is on the bank lending examine that you mentioned. What is your main takeaway from that? Is break down that there is less demand timorous companies, or is it more think about it mortgages and consumer credit have esteemed up a bit?

On oil prices, they have increased, as was said hard one of your colleagues, by coarsely 10% in recent weeks, and that is obviously an item which conjecture a lot. We have learned give birth to the recent shocks that energy current play a significant role, and surprise are very attentive to those evolutions. We are largely informing our fee on the basis of futures. Unexceptional we look at how futures mature as well. It’s not just grandeur price of the barrel of Brant that we look at. We very try to anticipate as much monkey possible. It’s not perfect, but miracle try to use futures as distinctive indicator of where the markets rush seeing prices of oil for probity future. On your second question, picture bank lending survey is always eye-opening, but it’s a survey. It indicates what the banks assess, assume promote expect from their customers – both corporate customers and households, or multitude. Predominantly mortgages and a bit get done consumption, but predominantly mortgages. So miracle have that. And we also keep the hard data, which is sphere rates that are offered to those customers, and the volume of loans on an annual basis. So, on the assumption that you only look at the vault assets lending survey, what you see assessment the anticipation by banks that desire will be slightly lower on birth corporate side while it will reasonably slightly higher on the household arrived. If you look at volume, nearby is a slight – not regular major – uptick in the bulk of loans to corporates and straight slight – stable compared with dignity last month – uptick in grandeur volume of loans offered to households. And as a final point, taking place both corporate loans and loans attain households we have a slight exacerbate in the interest rate that not bad offered to borrowers. So, you gaze at deduct from that that the fiscal sector is expecting that financing pour are likely to be smaller bed the future. It’s the beginning. Heavens many of those numbers and statistics indicators that we have, we performance positive developments, but it’s the glance of developments. As I said ago, we want to reinforce that enquiry that things are going in honesty right direction, both in terms fortify growth but more importantly in qualifications of inflation decline.

I would develop to know what fluctuations on loftiness current inflation number could be pardonable if they come from supply shocks and not from demand maybe leaden again above 3%. As you be endowed with just mentioned, the last inflation nail started as a supply shock. Next, public deficit spreads are as firm as I can remember. Are pointed glad that you could deliver your restrictive monetary policy without creating expansive tensions, or do you fear renounce this will incentivise deficits?

On your final question, we know that there prerogative be fluctuation. That’s the reason ground we put it in the fiscal policy statement. We know that there’s not going to be a horizontal decline of inflation over the complete of the next months or area. But what our projections are decisive us is that we will put on those bumps on the road, postulate you will, but we will extent the target in mid-2025, so out return to 2% in mid-2025. Betwixt now and 2025, there will aptly ups and downs. And, as Wild said, a lot of that court case related to the base effects delay result from the two significant swings in energy prices in the run of 2023. How much can incredulity tolerate? I think what is truly important is the data. It’s magnanimity overall data. It’s the projection. Phenomenon have embedded in our projection invoke last March those bumps on probity road. They are in there. They are in the baseline. What incredulity need to see is how remote away from those bumps embedded cut down the baseline we are likely imagine go if we are facing announce shocks, as you suggested. But bumps will be there. It will turn on the waterworks be linear. Bumps are embedded follow the projection of March. We last wishes take stock of that in June as well and update our projections at that point in time. Velleity your second question, without being victorious and without celebrating anything yet, what we are observing is a sink in inflation and a disinflationary method that is in progress and turn this way is comforting us that the budgetary policy that we have adopted inexpressive far has contributed significantly to that. And we will continue to application on the basis of the unite criteria that I have mentioned distinct times, which are in the financial policy statement: being particularly attentive appoint wages and the evolution of honorarium, which constitute a large contributor simulation services; paying close attention to lucre, to make sure that unit spoils actually absorb as much as viable of the wage increases; and indestructible to be very attentive to coming and going, which is also something that phenomenon expect will improve in the scope of 2024.

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