The Governing Council conducted its regular examination of monetary and economic developments and analysed their implications for the maintenance of price stability in the euro area. The decision to keep interest rates unchanged reflects the following assessment.
As regards the first pillar of the monetary policy strategy of the ECB, data for January 2001 indicated that the moderation of the growth of monetary aggregates, which has been observed since the spring of last year, continued. According to the latest data, the three-month average of the annual growth rates of M3 in the months from November 2000 to January 2001 stood at 5.0%, which was slightly lower than the average of 5.1% recorded for the period from October to December 2000.
As regards the second pillar, there are indications that euro area real GDP growth was lower in the second half of last year than in the first half, but the general outlook for this year and next remains positive. Economic activity in the euro area is mainly determined by domestic factors. The conditions on the domestic side, as shown in long-term financing costs and disposable income developments, for example, have remained favourable. In addition, the euro area 's high rates of capacity utilisation, continuing employment growth and declines in unemployment should contribute to fostering private investment and consumption. The overall level of confidence in the euro area has remained high and economic indicators relating to developments around the turn of the year support the view that economic growth will remain fairly robust.
This notwithstanding, an element of uncertainty with regard to the outlook for euro area growth continues to be the world economy and its potential impact on euro area developments. However, at this juncture, there are no signs that the slowdown in the US economy is having significant and lasting spillover effects on the euro area. Nevertheless, a close monitoring of global developments is warranted.
As regards recent price developments, the annual rate of increase in the Harmonised Index of Consumer Prices -LRB- HICP -RRB- in January 2001 was 2.4%, as published by Eurostat, 0.2 percentage point lower than in December 2000. The rate of increase in energy prices continued to decline, but other HICP components, notably unprocessed food and services prices, rose significantly. The latter have been affected by increases in indirect taxation and administered prices. Oil prices and the euro exchange rate in January and February 2001 were subject to some volatility. Caution is therefore warranted in assessing their likely impact on HICP inflation in the short run. Moreover, indirect effects of past oil price increases and the depreciation of the euro are still coming through, as witnessed by the continued rise in producer price increases for consumer goods. Taken together, these factors might prevent consumer price inflation from falling quickly below 2% for some months to come.
Governments can contribute to fostering non-inflationary growth by continuing structural reforms in order to further enhance the flexibility of labour and goods markets in the euro area. Long-term growth perspectives for the euro area will also benefit if governments reinforce their efforts to proceed along the path of fiscal consolidation. It is regrettable that budgetary plans, as recently expressed in countries ' updated stability programmes, are not very ambitious. Tax cuts are welcome, but current budgetary plans foresee insufficient spending restraint.
Overall, for the medium-term outlook for price stability, risks appear to be more balanced than in late 2000. In particular, the indications from M3 growth over recent months point to a gradual decline in upward risks. However, some factors still argue for caution. In this respect, it is crucial that social partners continue the process of wage moderation seen in the past. In this, they can be assured that the Governing Council will maintain price stability over the medium term.
Question: Mr. President. During your recent visit to Britain, Mr. Romano Prodi said about being in the euro zone, and I quote," if you are in, you have your man in the European Central Bank, giving his contribution to the control of the economy '', giving the impression that the ECB is taking its decisions along national lines. And so I would like to know if you agree with Mr. Prodi on that opinion? And the second question is: we noticed an important gap between France and Germany, two of the main members of the euro zone, especially in the last quarter for growth and also inflation, and I would like to know what could the ECB do to achieve more convergence between its members and what could the Member States maybe do themselves?
Duisenberg: That 's quite a story, but I can answer both questions in one sentence. The ECB exclusively takes a euro area-wide perspective. So, in the preparation of its decisions, it takes a euro area-wide perspective and there is no question that monetary policy will be decided along considerations of national or regional interests, and that answers your second question at the same time. Monetary policy is one and indivisible for the euro area as a whole. There does not exist any regional monetary policy.
Question: Mr. Duisenberg, I have three questions. The first question concerns M3. Do you see any risk that the slowdown of the growth rate of M3 will come to a stop in the coming months and that the average rate will be over 4.5% for the whole year? The second question is: is your overall monetary stance still wait-and-see? Is it a little bit more neutral than it was four weeks ago? And my third question concerns the variable rate tender. Did you discuss stopping the minimum bid rate, that is, giving up the minimum bid rate and returning to the real variable rate tender?
Duisenberg: Taking your questions in reverse order, we did not discuss stopping the minimum bid rate. The monetary policy stance of today should be interpreted as being just the same as it was four weeks ago. So if you qualify it as" wait-and-see '', I would repeat that qualification. We do not see signs that the very gradual slowdown of M3 in the direction of the reference value might be interrupted in the near future.
Question: Mr. President. Did the Governing Council talk about the situation in Turkey and what is your assessment of the situation down there? Is there a new crisis looming that could spill over into the euro area?
Duisenberg: We did not discuss Turkey. We did provide the Governing Council with an analysis of the events in Turkey and the possibility of spill-over effects to the euro area, which concludes that such spill-over effects are not to be feared.
Question: At the end of this month we have the EU Competitiveness Summit coming up in Stockholm. You have expressed disappointment about what governments are doing to improve their economies. Do you think there could be some signals from that Summit which could be helpful for the economy and also for the single currency, that governments are prepared to take action?
Duisenberg: Well, if the summit in Stockholm would reinforce the goal of further structural reforms in labour and goods markets, that would be a very welcome and helpful sign supporting our policies.
Question: President Duisenberg. A couple of years ago, you promised to at least see through the 2002 introduction of notes and coins and, as you are going to emphasise in the second half of this press conference, that is not so far off, can you promise us today to stay a little bit longer than that?
Duisenberg: I promise today that I will stick to my promise not to comment on that issue again.
Question: Despite the dramatic US economic slowdown, the euro has been unable to capitalise on the rebound from late last year into early this year. And only last week, it was staring the psychological ninety cent level in the face. So, what reasons does the Governing Council give for the way the exchange rate is behaving at the moment?
Duisenberg: The Governing Council does not give any reasons for the way the exchange rate is behaving. As you are well aware, the exchange rate is not a target for the Governing Council and, therefore, let 's say, we take it as it comes unless there are developments that are clearly unacceptable and taking the exchange rate too far away from what it fundamentally should be.
Question: Mr. President, I have a question on the price standard. You quantify price stability by saying that the increase in prices should be below 2%. There are now assessments according to which this average rate in 2001 will be exceeded, just as it was in 2000. Now we hear that there are discussions that this target should be increased upwards, with the argument that small economies have to catch up. There is a special statement here saying that the price index could be justifiably increased. Are there any discussions in that direction and how do you see this development?
Duisenberg: No discussions are under way. We do not have under consideration any change in our stated objective whereby price stability is defined as a rate of increase in the HICP index of less than 2% over the medium term, and as far as policy is concerned, we are confident that we will reach that goal. As I said, it may be another couple of months before we are there again, after the disturbance which was caused last year by the increase in oil prices and the depreciating tendency of the euro. But our assessment for 2001, and also for 2002, is that we will fulfil our mandate.
Question: I imagine that the BSE crisis could develop into some kind of shock, have effects on prices and general demand. Now, have you analysed that and what are you prepared to say today?
Duisenberg: We have analysed it, of course. We have taken it into account. We have not come to the conclusion that it might be so significant as to warrant any emergency measures. But it could have some temporary upward effect on inflation rates, which you might interpret as an external shock, as was the increase in oil prices last year. But we certainly do not think it will be of that magnitude.
Question: President Duisenberg, the US rates are significantly higher than those in Euroland. Can you say what that means for the ECB 's monetary policy? Second question: Time and time again you said that the euro was too weak. How do you judge the present exchange rate? Is it average? Is it still too weak? What do you think?
Duisenberg: As in my reply to an earlier question, we do not see the exchange rate as a target. We considered it too weak in September and October last year. We then took action and did something about it. By virtue of the fact that we are taking no action at present, you can assume that we are not perturbed by the present state and development of the exchange rate. Now, we have indeed noted that the interest rates in the United States are still higher than in Europe. But, again, our goal is to maintain price stability in Europe. The European economy, even after taking financial market movements into account, is a closed enough economy to justify us ignoring those differentials.
Question: I wonder if we could just have it confirmed that your monetary policy stance has not edged even a tiny bit away from neutral to possibly an easing stance. Is it still the same as it was? Another thing: I wonder if you also feel...
Duisenberg:... on that I can repeat what I said in response to the first question. But I do confirm that today 's monetary policy stance is the same as it was four weeks ago.
Question: Does that also apply to the outlook on economic growth this year? Are you still looking at roughly close to 3%?
Duisenberg: That is correct.
Question: Mr. Duisenberg, two questions. The first question is on the money market. In the last couple of days, overnight money rates increased dramatically. That is certainly due to the fact that banks did not bid sufficiently for the business earlier on. But my question is why did the ECB not help after a couple of days? Why did the ECB not make up for this? And why did it leave especially small and medium-sized banks on their own? Now for my second question: You were saying that inflationary outlook is more or less moderate. The HICP, however, will probably remain at 2% for quite some time. Does that mean that any increase and decrease in interest rates will only occur if the HICP is under 2%?
Duisenberg: Christian can already start thinking about the first question... When I said that we are confident that we will reach and achieve our mandate of an inflation rate of less than 2% within the next few months and stay there for 2001 and even 2002, that assessment is based on the assumption that interest rates will remain unchanged. In other words, we do not plan to change our monetary stance on the basis of the information that we have available today. What will happen in the future - nobody knows.
Noyer: As regards your question on overnight interest rates in the money market and what the ECB has done, the fact is that immediately following the clear underbidding from the banking community, we were close to the end of a maintenance period for minimum reserves. That also means close to the beginning of the next one. We were therefore in the difficult position of the following tender covering the end of one period and the beginning of another. And the liquidity of the banking sector was different between these two sub-periods. In this context, the ECB did what we thought we had to do. In other words, in order to help the money markets we gave more liquidity than we would have normally given. But there was no way we could technically resolve the problem in its entirety, in other words avoid an increase in the interest rate, unless we had been active on a daily basis in the market by way of fine tuning operations. But this would signal a different type of liquidity provision to the market than the one adopted in complete accordance with what most of the national central banks were doing before Stage Three of Monetary Union. So, we believe that the market has understood that well and that the problem has been overcome by the banking sector.