Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. As regards non-standard monetary policy measures, the focus is now on implementation.
Following up on our decisions of 22 January 2015, we will, on 9 March 2015, start purchasing euro-denominated public sector securities in the secondary market. We will also continue purchasing asset-backed securities and covered bonds, which we started last year. As previously stated, the combined monthly purchases of public and private sector securities will amount to $ 60 billion. They are intended to be carried out until the end of September 2016 and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. Further information on certain implementation aspects of the public sector purchase programme will be released at 3.30 p.m. CET on the ECB 's website.
We have already seen a significant number of positive effects from these monetary policy decisions. Financial market conditions and the cost of external finance for the private economy have eased further, also following our previous monetary policy measures. In particular, borrowing conditions for firms and households have improved considerably. Moreover, money and credit dynamics have been firming.
The substantial additional easing of our monetary policy stance supports and reinforces the emergence of more favourable developments for the euro area economy. In an environment of improving business and consumer sentiment, the transmission of our measures to the real economy will strengthen, contributing to a further improvement in the outlook for economic growth and a reduction in economic slack. Thereby, our measures will contribute to a sustained return of inflation towards a level below, but close to, 2% over the medium term and underpin the firm anchoring of medium to long-term inflation expectations.
Let me now explain our assessment in greater detail, starting with the economic analysis. According to Eurostat 's flash estimate, real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014, which was somewhat higher than previously expected. The latest economic data and, particularly, survey evidence available up to February point to some further improvements in economic activity at the beginning of this year. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. The low level of the price of oil should continue to support households ' real disposable income and corporate profitability. Domestic demand should also be further supported by our monetary policy measures leading to ongoing improvements in financial conditions, as well as by the progress made in fiscal consolidation and structural reforms. Moreover, demand for euro area exports should benefit from improvements in price competitiveness and from the global recovery. However, the euro area recovery is likely to continue to be dampened by the necessary balance sheet adjustments in various sectors and the rather slow pace of implementation of structural reforms.
This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017. Compared with the December 2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth in 2015 and 2016 have been revised upwards, reflecting the favourable impact of lower oil prices, the weaker effective exchange rate of the euro and the impact of the ECB 's recent monetary policy measures.
The risks surrounding the economic outlook for the euro area remain on the downside but have diminished following recent monetary policy decisions and the fall in oil prices.
According to Eurostat 's flash estimate, euro area annual HICP inflation was -0.3% in February 2015, after -0.6% in January. The negative outcomes largely reflect the impact of the significant fall in oil prices since July 2014. On the basis of current information and prevailing futures prices for oil, annual HICP inflation is expected to remain very low or negative in the months ahead. Supported by the favourable impact of our recent monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption of somewhat higher oil prices in the years ahead, inflation rates are expected to start increasing gradually later in 2015.
This assessment is also broadly reflected in the March 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.0% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the December 2014 Eurosystem staff macroeconomic projections, the inflation projection for 2015 has been revised downwards, mainly reflecting the fall in oil prices. In contrast, the inflation projection for 2016 has been revised slightly upwards, also reflecting the expected impact of our recent monetary policy measures.
The Governing Council will continue to closely monitor the risks to the outlook for price developments over the medium term. In this context, we will focus in particular on the pass-through of our monetary policy measures, geopolitical developments, and exchange rate and energy price developments.
When discussing the economic outlook and the new projections, the Governing Council acknowledged that the staff projections are conditional on the full implementation of all our policy measures. Moreover, the March staff projections extend the horizon to 2017. In this context, the Governing Council again stressed that the degree of forecast uncertainty tends to increase with the length of the projection horizon.
Turning to the monetary analysis, recent data confirm the gradual increase in underlying growth in broad money -LRB- M3 -RRB-. The annual growth rate of M3 increased to 4.1% in January 2015, up from 3.8% in December 2014. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 9.0% in January.
The annual rate of change of loans to non-financial corporations -LRB- adjusted for loan sales and securitisation -RRB- was -0.9% in January 2015, after -1.1% in December 2014, continuing its gradual recovery from a trough of -3.2% in February 2014. The three-month cumulated net lending flows were positive in January for the second consecutive month, compared with sizeable net redemptions still recorded a year ago. Despite these improvements, the dynamics of loans to non-financial corporations remain subdued and continue to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households -LRB- adjusted for loan sales and securitisation -RRB- increased further to 0.9% in January 2015, after 0.8% in December 2014. Our recent monetary policy measures should support a further improvement in credit flows.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the appropriateness of the Governing Council 's recent decisions. The determined implementation of all our monetary policy measures will provide support to the euro area recovery and bring inflation rates towards levels below, but close to, 2% in the medium term.
Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas need to contribute decisively. Given high structural unemployment and low potential output growth in the euro area, a cyclical recovery along the lines of the March ECB staff projections is no grounds for complacency. In particular, in order to increase investment, boost job creation and raise productivity, both the decisive implementation of product and labour market reforms and actions to improve the business environment for firms need to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively, as this will not only increase the future sustainable growth of the euro area but also raise expectations of higher incomes and encourage firms to increase investment today, bringing forward the economic recovery. Fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact. Full and consistent implementation of the Stability and Growth Pact is key for confidence in our fiscal framework. In view of the necessity to step up structural reform efforts in a number of countries, it is also important that the macroeconomic imbalance procedure is implemented effectively in order to address the excessive imbalances as identified in individual Member States.
Question: Mr Draghi, could you explain to us what the Governing Council means by sustained adjustment in the path of inflation? That seems to be the criteria for success of your asset purchase programme.
Question: My second question is about Greece. The Greek government would like to be able to fund its short-term obligations by issuing more T-bills. The ECB has one of these T-bill limits in its control, namely the ceiling that is set on T-bills that can be placed as collateral. My question is, would you be willing, or would the Governing Council be willing, to raise this ceiling at some point, and under what conditions?
Draghi: The sustained improvement, it just says what it says. There is no other way to answer your first question. In other words, a material dislocation from the foreseen objective would be the criteria, but at this point in time, we see absolutely no reason to think or plan or act in any different way from what we 've planned, namely the purchasing of $ 60 billion a month of securities until September 2016, or beyond, if needed.
Draghi: On your second point, a quick answer to your question is the following. The ECB is a rule-based institution. It 's not a political institution. One of the rules that we comply with is contained in the Treaty, and it 's Article 123, and it 's the prohibition of monetary financing. Monetary financing is when the central bank of a country prints money to buy the government bonds in the primary market of that country, and it could be either direct or indirect, when banks bring collateral to the ECB in order to be financed in order to buy the sovereign debt of that country, and we are prohibited from doing that.
Question: There are more and more government bond yields that have turned negative in the eurozone. You said in January that negative bond yields would n't prohibit you from doing QE, but is there a limit to how low, how negative these bond yields can be in order for you to purchase bonds at a negative yield?
Question: My second question is, we 've seen a major impact in the financial markets from the run-up to QE, the QE decision, equity prices at record highs, bond yields at record lows. Is there a danger that this policy is going to widen the wedge between the rich and the poor? People with access to financial markets are going to benefit, but the people in the eurozone who are without a job or are struggling might not see the fruits of the quantitative easing decision as much as people with access to the financial markets.
Draghi: First of all, let me say, our monetary policy decisions have worked, and it 's with a certain degree of satisfaction that the Governing Council has acknowledged this. The monetary policy decisions we are discussing today are the final set of measures of a series of decisions that have been taken starting in June last year, and we see that the objectives are gradually being attained. The market reaction to the announcement, the expectation first and the announcement second, of our asset purchase programme has also been quite effective and quite positive.
Draghi: We have n't even started, and a lively discussion about whether we 'll actually be able to do this has developed. It 's quite interesting that until a month ago, nobody had any doubt that public debt, sovereign debt in the euro area, was actually very, very big, and now some people worry that we wo n't have enough bonds. Incidentally, I 'm told that the very same statements were made when the US and the UK started their bond buying programme. But the bottom line of this is that there may be complexities. We think they 're not relevant. We observe that almost half of the euro bonds are outside the euro area and we also observe that the average weighted price of bonds in the 2 to 30-year maturity is well above par. It 's exactly 124%. So how negative do we go? Until the deposit rate.
Draghi: The second question assumes that the improvements we see in the financial markets will never pass through to the real economy, but that 's exactly what we have not been observing over the last few months. As a matter of fact, in a more and more accelerated way, we 've seen a decline, if not a steep fall, in the lending rates across the euro area, a significant decrease in dispersion in the lending rates. You know from previous press conferences that fragmentation on the funding side for the banking system has basically disappeared several months ago, but for quite a time, fragmentation on the lending side still remained. That has gone down a lot, and one can say now that all rates have converged quite well.
Draghi: What we are seeing now is that these benefits from a very accommodative monetary policy stance are being passed in the form of lower borrowing costs to the real economy, to non-financial companies, to households. We see for example the credit flows to households have increased, and then we will see that the channels through which this asset purchase programme works will firm up, will strengthen the transmission through the usual signalling channel, confidence channel, interest rate channels, wealth effects, and exchange rate effect of course.
Question: Was there a solution in the recent past for the conditions to re-start the smooth financing of the Greek system? Could you perhaps elaborate more specifically on the conditions for the fiscal side and the type of reforms that a programme that you yourself think would be adequate guarantee, that would re-start the financing? Could you elaborate on that, please? That 's my first question.
Question: My second question, the QE programme that you have announced pertains to purchases of sovereign bonds and also private. The four Greek systemic banks have been judged creditworthy after the stress test they went through. Does that mean that the Eurosystem could proceed to purchase securities, bonds or ABS of the Greek banks, or covered bonds, on those terms?
Draghi: Let me first say something that perhaps is not entirely known. The ECB up to today has lent to Greece $ 100 billion, and more exactly has doubled its lending from $ 50 billion to $ 100 billion in the last month and a half, the last two months. The lending to Greece today is 68% of the Greek GDP, which is the highest in the eurozone. In this sense, one can really say that the ECB is the central bank of Greece, but it 's also the central bank of all the other countries, and it 's a rules-based institution, as I have just recalled a moment ago. The ECB is the first to wish to re-start the financing to the Greek economy, provided the conditions are in place. And the conditions to be in place is that a process which suggests a successful completion of the review be put in place fast. That is the condition, and we will certainly welcome such development.
Draghi: Going to your second question, right now, the ECB can not buy Greek bonds. The purchase programme does n't foresee the purchase of private bonds. It can not buy Greek bonds for a variety of reasons. First of all, the purchases are not supposed to take place for countries under a contract or a programme during the review period, so in this sense, we would n't be able to buy Cypriot bonds either, or Greek bonds.
Draghi: Secondly, we can only buy investment-grade bonds, and as such, the Greek bonds are below the threshold of investment-grade, so the waiver will have to be reinstated, and we are ready to do so, as soon as these conditions are in place.
Draghi: Third, we have a limit of 33% per issuer 's bonds, so we can not buy more than 33% of the bonds, of the total stock of bonds issued by the same sovereign, and our current SMP holdings are such that this limit is at present overcome, so we would n't be able to buy these bonds. As soon as Greece repays the SMP bonds that are due, they 're coming due I believe in July or August, and if the waiver had been reinstated of course, then we would be able to buy Greek bonds via this new asset purchase programme.
Question: You 've already outlined the financial accommodation you 've offered to Greece. Much of it comes in the form of emergency liquidity assistance. Could you perhaps expand on the degree of willingness there would be to extend further emergency liquidity assistance towards Greece and if indeed today perhaps you 've already decided to extend the limit beyond the current level?
Question: Also, you talked about the need to respect the Stability and Growth Pact in the eurozone. Do you see a risk of, let 's say ill feeling in the eurozone if large countries are given additional flexibility and smaller countries on the periphery are required to stick to stricter limits in terms of spending?
Draghi: In fact, yes we 've raised ELA today. That 's what the Governing Council has decided, by $ 500 million. As I said the ECB is a rules-based institution. From this viewpoint, the decision about lifting the waiver, as well as the decision not to allow monetary financing, and finally the decision about determining an ELA, are all the outcome of rules, not our political decisions.
Draghi: ELA is a decision of the National Central Bank of Greece, to which the Governing Council may decide to object with a very special and demanding majority requirement, if certain conditions are not in place. One condition is that ELA can be given to solvent banks with adequate collateral. The Greek banks at the present time are solvent. Their capital levels are well above the minimum requirements, and that 's positive news. A lot has been done by Greece to strengthen its banking system. Capital has been raised. There has been restructuring. There has been consolidation. Some of the NPL, the non-performing loan problems, have been addressed so, today, the Greek banking system is solvent and is key to providing credit to the Greek economy.
Draghi: It 's absolutely essential that this solvency be maintained, because that is the precondition for the ECB to be able to allow ELA, and therefore financing to the economy, financing to companies and households in Greece, and the private sector in Greece. And this is important, and I 'm saying this because if there is in place a certain communication that creates volatility in the markets, this communication destroys collateral, increases the spreads and destroys collateral, undermines the solvency of the Greek banking system. Communication is absolutely essential.
Draghi: That 's the most important thing that we can do today, to preserve the solvency and the robustness of the Greek banking system, and also to this extent, the ECB has asked the Eurogroup members to make sure that the recapitalisation fund of something around $ 10 billion be readily available to face any sudden negative contingency that might materialise. The ECB has presented this request. Some language in the last Eurogroup statement reflects this request by the ECB.
Draghi: I do n't want to comment on the ill feelings, but certainly, what I would suggest is you go back to the last 15-plus years and look at which countries have been in the excessive deficit procedure most often, over the last, say, 15, 16, 17 years, and then draw a conclusion from there. But to address your point, there is a sentence here that says, full and consistent. Consistent implementation of the Stability and Growth Pact is key for confidence in our fiscal framework.
Question: I know that you have already made a statement, but still, I want to know, what would be the immediate impact or benefit for Cyprus from the QE programme? Can Cyprus benefit from the policy immediately? Of course also for Mrs. Georghadji.
Georghadji: As President Draghi explained, countries like Cyprus, which are under a programme, to get benefit from the programme, they must have a positive review by the Troika, or the institutions, whatever you like. Unfortunately, as you know, the Fifth Review of the Cyprus economy has not been concluded yet, and this is because the law for the foreclosures has not been put into effect. When there is a positive review, we will be able to start immediately and get the benefit of the programme. According to the parameters of the programme, then the Cyprus economy can benefit up to $ 500 million throughout the effect of the programme.
Georghadji: The programme, as President Draghi said in his initial statement, will start on 9 March, and it will go at least until September 2016. This programme will have a very beneficial impact for Cyprus, as it will suppress the interest rates, and suppress the interest rates downwards, and therefore, the Cypriot government will be able to borrow at lower rates. This is the big benefit from the programme, and therefore, we look forward to taking part in this programme.
Question: In the last weeks, we have seen negative yields in public debt, in some public debts. In Germany, even five-year bonds are in negative territory.
Question: And a second question if I may. Did you take the decision about the Greek waiver in February based on your doubts of the successful conclusion of the programme? Why is the extension agreed by the Eurogroup, and the list of reforms sent by Mr Varoufakis, not enough?
Draghi: Let me step back. We decided to have a waiver in place at the time when there were reasonable assessments for a successful completion of the review of the programme. In other words, by and large, the programme was on track.
Draghi: Let me explain why this is so. We have this rule that says we ca n't accept as collateral bonds that are below a certain threshold. The Greek bonds at the present time, and were even then, below this threshold. However, if certain conditions are in place, as far as the economic policy is concerned, that would make the ECB and the Governing Council think that in some time from now these bonds will become again eligible, will be rated above the threshold. Then there are the conditions for the waiver. And that 's the decision taken at that time.
Draghi: Then we assessed that these conditions were not in place. It 's quite clear that in mid-February when we decided this, the programme was not on track. It was not only an assessment that we were making ; it was an assessment explicitly stated by the government. So at that point we really had no choice.
Draghi: Having said that, we stand ready to reinstate the waiver as soon as we are able to make a positive assessment about the likelihood of a successful completion of the review.
Draghi: On the first point, I frankly do n't want to pass judgement on specific individual countries ' fiscal policies. What I could say, however, is that the monetary policy measures that we decided in January, but also for the previous ones, to be fully effective, need first and foremost strong structural reforms. That is, otherwise we can provide as much credit as possible. We can refinance the banking system so they can lend as much money at the lowest interest rates. But if the structural conditions are not in place, there will be little incentive to use this credit.
Draghi: I 'm not saying that these measures are not effective. I 'm saying that their effectiveness is going to be lower. And from our viewpoint, that means it 's going to take longer to get to our objective of price stability, namely an inflation that is close but below 2% in the medium term.
Question: I will speak in Greek once again, Mr. President. I would like to ask, I heard you say, and I was glad to hear you say, that you 've approved 100 billion euros liquidity to our country. But we see that in the last 20 days, you say that you decided this based on political criteria. The question is, since the liquidity goes to the banks firsts, the Greek banks, are they safe?
Question: And second, your decisions, up to which level are they affected by the political decisions of the ministers of the Eurogroup?
Draghi: You rightly said, you rightly reminded us that the ECB has already lent -- not liquidity -- just lent 100 billion euros. And I repeat, it 's 68% of Greece 's GDP, and it 's the highest in the whole euro zone. And it has doubled this amount in the last two months. So the last thing one can say is that the ECB is not supporting Greece.
Draghi: Now you asked the question to what extent our decisions depend on what happens in the Eurogroup. The answer is, to an enormous extent. If there is an agreement -- called contract, call it whatever you want -- our underlying, our background changes completely, and we would be much better in place to take favourable, more favourable, decisions for Greece.
Draghi: And you know, the reasoning really goes this way. First of all, once a country has a contract, then disbursements could take place, could be restored by the member states. Then market access could be restored. If there is market access, many of our concerns about monetary financing would disappear because if the government has the capacity to finance itself on the market then the issue of having banks financing the government would disappear.
Draghi: So the ultimate result of all this is that flexibility to the Greek government economic policy would return within the contract that the Greek government would define with the other members of the Eurogroup.
Question: From what I can see from the opening statement, it seems that the inflation forecasts are based in large part on the futures market, getting it right about the direction of oil prices. But we 're still in an environment where core inflation is at an all-time low. Can you tell me a little bit about how you see the path of core inflation developing over the forecast horizon? Just a forecast for 2016, is it more a reflection of the bounce-back from oil prices? Or now that you 're more bullish on the economy, does it affect core inflation as well?
Question: Second question to both yourself and the governor of the Central Bank of Cyprus. It 's almost two years now since the haircut and capital controls were imposed on Cypriot depositors. Knowing what 's happened since then, do you think it 's a decision you 'd take again?
Draghi: I will first answer my question, and then the governor will answer the other question. You are absolutely right. Core inflation is still low, although we noticed just today that one of our measures of inflation expectations is now back to a fairly high level. I would n't say an all-time high, certainly not, but a three-month or four-month high, yes, I 'm pretty sure. So that is another piece of news. But I would n't rely too much on point observations because as they come they also go.
Draghi: What we can say safely is that our monetary policy decisions, this one but also the previous ones, have stopped a decline in inflation expectations that had started at the end of July last year, and it became more and more marked by year-end.
Draghi: Now, it is true that our projections of inflation are basically, as you said, based on oil price futures, but also there are other factors which play a role for core inflation. One, of course, is again our monetary policy stance and its effects on the exchange rate. The second one is the closing of the output gap that we foresee happening gradually between now and 2017. Another factor is that real disposable income is being supported, again, not only by oil prices but also by our monetary policy stance.
Draghi: And here the channel through which this may happen is the following. Our monetary policy decisions have significantly decreased the risk of second round effects coming from lower oil prices on inflation. You remember, when we discussed the effects of lower oil prices a few months ago, we said they were a good thing, but also there was a potential negative side to that if these effects produced second round effects which could have a deflationary impact. Then people will actually save more and consume less. We believe that our monetary policy decisions have avoided this risk. Therefore, we foresee a savings rate which remains what it is today, a recovery where consumption gradually strengthens and firms up. Now all these factors will have an impact on core inflation as well.
Georghadji: The decisions were taken in March 2013, two years ago, and they were very painful for the country and for its people. However, it is my view that under the then circumstances, there was no other way. We should have taken measures long before the very difficult decisions were taken.
Georghadji: Now the question with regard to the capital controls. Capital controls also were inevitable until the restoration of the confidence in the banking sector. But it was a decision taken by the minister of finance after consultation with the Governor of the Central Bank. And I can assure you that it is the view of the minister, of the government and of the Governor that these capital controls, the very few capital controls which are still in place, very few, only two or three measures, will be very soon lifted, before the end of the first quarter of the year.
Question: Mr Draghi, if I understood you correctly, you said that during a review no programme country could participate in the QE. But do n't you think it 's a bit suspicious on behalf of the ECB, why during those 15 days no QE would be allowed for a country under the programme?
Question: And my second question is, you yourself last night during the dinner with the President of the Republic referred to Cyprus ' good record of programme implementation. Given this positive assessment by you, is the ECB considering approving the request submitted by the government of Cyprus for the conversion of the ELA, the emergency liquidity funding of Bank of Cyprus, to a long-term bond?
Draghi: On the first issue, it 's the same condition we have with OMT. During a review process, we do n't want to influence the review process via conditions that are special conditions for market access of the country. So it would be an element which would interfere with the negotiations. So that is a standard rule that we have in place, that we have in place with OMT as well.
Draghi: On the second point, I 'm not sure I know anything about that. But I 'll give the floor to the governor.
Georghadji: With regard to the first question, let me add to what President Draghi has said, that one prerequisite to participate in the programme is that you have a positive review. Therefore, during the review period you can not participate in the programme anyway since you need to have a positive review.
Georghadji: With regard to the second question concerning ELA, of course President Draghi was there in the meeting with the President. And we have to remind you that, as he said twice during his opening speech, the ECB is a rules-based institution and ELA is extended under a framework and rules of the ECB. Within these rules I can assure you that both the governor, the central bank and the government is doing the best for the country.
Question: My question is this. Greece and Cyprus are the only two countries that, at this moment, can not participate in the QE programme, despite their favourable assessment. For Cyprus, the assessment is open up to the summer. How long do you think the Cyprus economy can last for this assessment?
Georghadji: We believe, we expect, we anticipate that the obstacle that exists for the completion of the fifth review, the law on foreclosures, the obstacle that exists will be lifted and we will be able to participate in the QE programme. I hope that that will happen soon. There could not be any waiver or exception to that.