FRANKFURT (Reuters) – The European Central Bank cut interest rates on Thursday and kept the door open to further policy easing as concerns over lacklustre economic growth supersede worries about persistent inflation.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
NEUTRAL RATE
“If you’re asking me today whether we should go below neutral rate in order to stimulate the economy, I cannot tell you that – that’s pretty obvious. We decide meeting by meeting on the basis of data, and we are not pre-committing to any particular pace.
“So how could I tell you if and when we arrive at this conceptual principle of the neutral rate, what we will do afterwards? This is going to depend on the data that we receive.”
NOT AT NEUTRAL RATE
“We are not at neutral rate. This is a debate that is entirely premature.
“When we get closer to that, we will operate on the basis of a staff research paper, on the basis of the analysis provided by staff, and then that will help us determine how close we are and what our monetary policy stance should be.”
NO STAGFLATION
“We never talked about stagflation. Q4 was stagnation of growth, but it’s one quarter. If you look at the whole year, it’s a different story. So, recovery there is – stagflation there is not.”
TARIFFS BAD FOR BUSINESS
“It’s far more complicated than ‘it’s this way or that way, it’s inflationary or deflationary”, depending on whether there is one set of decisions with variable rates around the world, rerouting of trade, whether there is retaliation or not.
“All we know for sure is that it will have a global negative impact – a global negative impact.”
CONSUMPTION PICK-UP
“We have good reason to believe that consumption will pick up and will continue to support this recovery process.”
BITCOINS IN CENTRAL BANK RESERVES
“I think there is a view around the table of the Governing Council and most likely the General Council as well that reserves have to be liquid, that reserves have to be secure, that they have to be safe, that they should not be plagued by the suspicion of money laundering or other criminal activities, and as a result I’m confident that bitcoins will not enter the reserves of any of the central banks of the General Council.”
WAGE GROWTH SLOWING
“All the indicators that we have at the moment are heading downward and are confirming our confidence that wages in (20)25 will be going down. Whether you look at compensation per employee, which is quite a useful and relevant indicator, whether you look at the wage tracker that we have, whether we look at the ratios of vacancy to unemployment, all of those indicators are heading in the same direction.”
NO DISCUSSION OF BIGGER CUT
“I can reassure you right away we did not even utter the two numbers 5-0. So fifty was not in the debate at all. There was rallying support unanimously by all members of the Governing Council for 25 basis points.”
REACHING INFLATION TARGET
“Yes, we are confident that inflation will reach our target in the course of (2025) and that’s 2% medium-term, sustainably so.”
DIRECTION OF RATES
“We are still in restrictive territory. And we have not had a discussion, because it would be premature at this point in time, about the point where we stop. We know the direction of travel.
“You’ve mentioned it in your question, and this is the direction that we will take at which pace with what sequence, what magnitude will be informed by the data that we will collect in the coming weeks and months and by the analysis that our staff will conduct.
“We are lucky that for our next monetary policy meeting in March, we will receive a projection prepared by staff, which will be informed by the economic environment as it unfolds. And we will have in the meantime two additional readings on inflation. Those are data points, granted, but a series of inflation readings are informing those decisions.”
ON THURSDAY’S 25 BASIS-POINT RATE CUT
“It was a unanimous decision.”
CONSUMER CONFIDENCE FRAGILE
Consumer confidence is fragile, and households have not yet drawn sufficient encouragement from rising real incomes to significantly increase their spending. Nevertheless, the conditions for a recovery remain in place.
JOB MARKET SOLID
“While the labour market has softened over the recent months it continues to be robust, and with the unemployment rate staying low at 6.3% in December. A solid job market, and higher incomes should strengthen consumer confidence and allow spending to rise.”
RECOVERY CONDITIONS IN PLACE
“Households have not yet drawn sufficient encouragement from rising real incomes to significantly increase their spending. Nevertheless. The conditions for recovery remain in place.”
WEAK ECONOMY
“The economy… is set to remain weak in the near term.”
DOWNSIDE RISKS
“The risks to economic growth remain tilted to the downside. Greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy.
“Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by geopolitical risks such as Russia’s unjustified war against Ukraine and a tragic conflict in the Middle East, which could disrupt energy supplies and further weigh on global trade.
“And further away on global trade, growth could also be lower if the lagged effects of monetary policy tightening last longer than expected, it could be higher if easier financing conditions and falling in inflation, allow domestic consumption and investment to rebound faster.”
ON TRADE FRICTION
“Greater friction in global trade would make the euro area inflation outlook more uncertain.”
INFLATION OUTLOOK
“We expect inflation to fluctuate around its current level in the near term. It should then settle sustainably at around the 2% in the medium-term.”
INFLATION TARGET
“Most underlying indicators have been developing in line with a sustained return of inflation to our medium term target.”
CONSUMER CONFIDENCE FRAGILE
“Consumer confidence is fragile, and households have not yet drawn sufficient encouragement from rising real incomes to significantly increase their spending. Nevertheless, the conditions for a recovery remain in place.”
JOB MARKET SOLID
“While the labour market has softened over the recent months it continues to be robust, and with the unemployment rate staying low at 6.3% in December. A solid job market, and higher incomes should strengthen consumer confidence and allow spending to rise.”
ON THE EURO ZONE ECONOMY
“The economy stagnated in the fourth quarter. It is set to remain weak in the near term.”
ON TRADE
“Provided trade tensions do not escalate, exports should support the recovery as global demand rises”
WEAK ECONOMY
“The economy… is set to remain weak in the near term.”
DISINFLATION ON TRACK
“The disinflation process is well on track. Inflation has continued to develop broadly in line with the staff projections and is set to return to our 2% medium term target in the course of this year.”
(Reporting by Reuters global newsdesk; Compiled by Emelia Sithole-Matarise)
