The Associated Press
The Associated Press
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today's meeting of the Governing Council, which was also attended by the Commission Vice-President, Mister Rehn.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, HICP inflation rates have been elevated for some time. More recently they have declined, as anticipated, and are expected to fall below 2 percent in 2013. Over the policy-relevant horizon, inflation rates should remain in line with price stability. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. The economic weakness in the euro area is expected to extend into next year. In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover, as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through to the economy. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.
Today, we have also decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2013 on 9 July 2013. This procedure will also remain in use for the eurosystem's special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2013. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. The rates in the three-month longer-term refinancing operations, to be allotted until June 2013, will be fixed at the average rate of the MROs over the life of the respective longer-term refinancing operation.
Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2 percent, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1 percent in the third quarter. Available statistics and survey indicators continue to signal further weakness in activity in the last quarter of the year, although more recently some indicators have stabilized at low levels and financial market confidence has improved further. Over the shorter term, weak activity is expected to extend into next year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. A gradual recovery should start later in 2013 as our accommodative monetary policy stance and significant improvement in financial market confidence work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth.
This assessment is reflected in the December 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6 percent and -0.4 percent for 2012, between -0.9 percent and 0.3 percent for 2013 and between 0.2 percent and 2.2 percent for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly damping sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.
According to Eurostat's flash estimate, euro area annual HICP inflation fell to 2.2 percent in November 2012, down from 2.5 percent in October and from 2.6 percent in the two previous months. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2 percent next year. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.
This assessment is also reflected in the December 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation of 2.5 percent for 2012, between 1.1 percent and 2.1 percent for 2013 and between 0.6 percent and 2.2 percent for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the projection range for 2013 has been revised downwards.