MONETARY
POLICY STATEMENT
PRESS
CONFERENCE
Christine
Lagarde, President of the ECB,
Luis de
Guindos, Vice-President of the ECB
Frankfurt
am Main, 10 March 2022
https://www.ecb.europa.eu/press/pressconf/2022/html/ecb.is220310~1bc8c1b1ca.en.html
Good
afternoon, the Vice-President and I welcome you to our press conference.
The Russian
invasion of Ukraine is a watershed for Europe. The Governing Council expresses
its full support to the people of Ukraine. We will ensure smooth liquidity
conditions and implement the sanctions decided by the European Union and
European governments. We will take whatever action is needed to fulfil the
ECB’s mandate to pursue price stability and to safeguard financial stability.
The
Russia-Ukraine war will have a material impact on economic activity and
inflation through higher energy and commodity prices, the disruption of
international commerce and weaker confidence. The extent of these effects will
depend on how the conflict evolves, on the impact of current sanctions and on
possible further measures. In recognition of the highly uncertain environment,
the Governing Council considered a range of scenarios in today’s meeting.
The impact
of the Russia-Ukraine war has to be assessed in the context of solid underlying
conditions for the euro area economy, helped by ample policy support. The
recovery of the economy is boosted by the fading impact of the Omicron
coronavirus variant. Supply bottlenecks have been showing some signs of easing
and the labour market has been improving further. In the baseline of the new
staff projections, which incorporate a first assessment of the implications of
the war, GDP growth has been revised downwards for the near term, owing to the
war in Ukraine. The projections foresee the economy growing at 3.7 per cent in
2022, 2.8 per cent in 2023 and 1.6 per cent in 2024.
Inflation
has continued to surprise on the upside because of unexpectedly high energy
costs. Price rises have also become more broadly based. The baseline for
inflation in the new staff projections has been revised upwards significantly,
with annual inflation at 5.1 per cent in 2022, 2.1 per cent in 2023 and 1.9 per
cent in 2024. Inflation excluding food and energy is projected to average 2.6
per cent in 2022, 1.8 per cent in 2023 and 1.9 per cent in 2024, also higher
than in the December projections. Longer-term inflation expectations across a
range of measures have re-anchored at our inflation target. The Governing
Council sees it as increasingly likely that inflation will stabilise at its two
per cent target over the medium term.
In
alternative scenarios for the economic and financial impact of the war, which
will be published together with the staff projections on our website, economic
activity could be dampened significantly by a steeper rise in energy and
commodity prices and a more severe drag on trade and sentiment. Inflation could
be considerably higher in the near term. However, in all scenarios, inflation
is still expected to decrease progressively and settle at levels around our two
per cent inflation target in 2024.
Based on
our updated assessment and taking into account the uncertain environment, the
Governing Council today revised the purchase schedule for its asset purchase
programme (APP) for the coming months. Monthly net purchases under the APP will
amount to €40 billion in April, €30 billion in May and €20 billion in June. The
calibration of net purchases for the third quarter will be data-dependent and
reflect our evolving assessment of the outlook. If the incoming data support
the expectation that the medium-term inflation outlook will not weaken even
after the end of our net asset purchases, the Governing Council will conclude
net purchases under the APP in the third quarter. If the medium-term inflation
outlook changes and if financing conditions become inconsistent with further
progress towards our two per cent target, we stand ready to revise our schedule
for net asset purchases in terms of size and/or duration.
Any
adjustments to the key ECB interest rates will take place some time after the
end of our net purchases under the APP and will be gradual. The path for the
key ECB interest rates will continue to be determined by the Governing
Council’s forward guidance and by its strategic commitment to stabilise
inflation at two per cent over the medium term. Accordingly, the Governing
Council expects the key ECB interest rates to remain at their present levels
until it sees inflation reaching two per cent well ahead of the end of its
projection horizon and durably for the rest of the projection horizon, and it
judges that realised progress in underlying inflation is sufficiently advanced
to be consistent with inflation stabilising at two per cent over the medium term.
We also
confirmed our other policy measures, as detailed in the press release published
at 13:45 today.
I will now
outline in more detail how we see the economy and inflation developing, and
will then explain our assessment of financial and monetary conditions.
Economic
activity
The economy
grew by 5.3 per cent in 2021, with GDP returning to its pre-pandemic level at
the end of the year. However, growth slowed to 0.3 per cent in the final
quarter of 2021 and is expected to remain weak during the first quarter of
2022.
The
prospects for the economy will depend on the course of the Russia-Ukraine war
and on the impact of economic and financial sanctions and other measures. At
the same time, other headwinds to growth are now waning. In the baseline of the
staff projections, the euro area economy should still grow robustly in 2022 but
the pace will be slower than was expected before the outbreak of the war.
Measures to contain the spread of the Omicron coronavirus variant have had a
milder impact than during previous waves and are now being lifted. The supply
disruptions caused by the pandemic also show some signs of easing. The impact
of the massive energy price shock on people and businesses may be partly
cushioned by drawing on savings accumulated during the pandemic and by
compensatory fiscal measures.
Over the
medium term, according to the baseline of the staff projections, growth will be
driven by robust domestic demand, supported by a stronger labour market. With
more people in jobs, households should earn higher incomes and spend more. The
global recovery and the ongoing fiscal and monetary policy support are also
contributing to this growth outlook. Fiscal and monetary support remains
critical, especially in this difficult geopolitical situation.
Inflation
Inflation increased
to 5.8 per cent in February, from 5.1 per cent in January. We expect it to rise
further in the near term. Energy prices, which surged by 31.7 per cent in
February, continue to be the main reason for this high rate of inflation and
are also pushing up prices across many other sectors. Food prices have also
increased, owing to seasonal factors, elevated transportation costs and the
higher price of fertilisers. Energy costs have risen further in recent weeks
and there will be further pressure on some food and commodity prices owing to
the war in Ukraine.
Price rises
have become more widespread. Most measures of underlying inflation have risen
over recent months to levels above two per cent. However, it is uncertain how
persistent the rise in these indicators will be, given the role of temporary
pandemic-related factors and the indirect effects of higher energy prices.
Market-based indicators suggest that energy prices will stay high for longer
than previously expected but will moderate over the course of the projection
horizon. Price pressures stemming from global supply bottlenecks should also
subside.
Labour
market conditions have continued to improve, with unemployment falling to 6.8
per cent in January. Even though labour shortages are affecting more and more
sectors, wage growth remains muted overall. Over time, the return of the
economy to full capacity should support somewhat faster growth in wages.
Various measures of longer-term inflation expectations derived from financial
markets and from surveys stand at around two per cent. These factors will also
contribute further to underlying inflation and will help headline inflation to
settle durably at our two per cent target.
Risk
assessment
The risks
to the economic outlook have increased substantially with the Russian invasion
of Ukraine and are tilted to the downside. While risks relating to the pandemic
have declined, the war in Ukraine may have a stronger effect on economic
sentiment and could worsen supply-side constraints again. Persistently high
energy costs, together with a loss of confidence, could drag down demand more
than expected and constrain consumption and investment.
The same
factors are risks to the outlook for inflation, which are on the upside in the
near term. The war in Ukraine is a substantial upside risk, especially to
energy prices. If price pressures feed through into higher than anticipated
wage rises or if there are adverse persistent supply-side implications,
inflation could also turn out to be higher over the medium term. However, if
demand were to weaken over the medium term, this could also lower pressures on
prices.
Financial
and monetary conditions
The Russian
invasion of Ukraine has caused substantial volatility in financial markets.
Following the outbreak of the war, risk-free market interest rates have
partially reversed the increase observed since our February meeting and equity
prices have fallen.
The
financial sanctions against Russia, including the exclusion of some Russian
banks from SWIFT, have so far not caused severe strains in money markets or
liquidity shortages in the euro area banking system. Bank balance sheets remain
healthy overall, owing to robust capital positions and fewer non-performing
loans. Banks are now as profitable as they were before the pandemic.
Bank
lending rates for firms have increased somewhat, while lending rates for
household mortgages remain steady at historically low levels. Lending flows to
firms have declined after increasing strongly in the last quarter of 2021.
Lending to households is holding up, especially for house purchases.
Conclusion
Summing up,
the Russian invasion of Ukraine will negatively affect the euro area economy
and has significantly increased uncertainty. If the baseline of the staff
projections materialises, the economy should continue to rebound thanks to the
declining impact of the pandemic and the prospect of solid domestic demand and
strong labour markets. Fiscal measures, including at the European Union level,
would also help to shield the economy. Based on our updated assessment of the
inflation outlook and taking into account the uncertain environment, we revised
our schedule for net asset purchases over the coming months and confirmed all
our other policy measures. We are very attentive to the prevailing
uncertainties. The calibration of our policies will remain data-dependent and
reflect our evolving assessment of the outlook. We stand ready to adjust all of
our instruments to ensure that inflation stabilises at our two per cent target
over the medium term.
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