The European Central Bank signalled faster money-printing on Thursday to keep a lid on euro zone borrowing costs but stopped short of adding firepower to its already aggressive pandemic-fighting package.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
RISING PRICE PRESSURES
“Underlying price pressures are expected to increase somewhat this year due to current supply constraints and the recovery in domestic demand, although pressures are expected to remain subdued overall, also reflecting low wage pressures and the past appreciation of the euro.”
MEDIUM-TERM INFLATION RISE
“Once the impact of the pandemic fades, the unwinding of the high level of slack supported by accommodative fiscal and monetary policies will contribute to a gradual increase in inflation over the medium-term.”
“The ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be a source of downside risk.”
VACCINE TO SPUR REBOUND
“The ongoing vaccination campaigns, together with the gradual relaxation of containment measures barring any further adverse development related to the pandemic, underpin the expectation of a firm rebound in economic activity in the course of 2021.”
FIRST QUARTER CONTRACTION
“Incoming economic data… point to continued economic weakness in the first quarter of 2021, driven by the persistence of the pandemic and the associated containment measures. As a result, real GDP is likely to contract again in the first quarter of the year.”
“We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.”
READY TO ACT
“We stand ready to adjust all of our instruments as appropriate to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.”
FAVOURABLE FINANCING ESSENTIAL
“Preserving favourable financing conditions over the pandemic period for all sectors of the economy remains essential to underpin economic activity and safeguard medium-term price stability.”
“If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy.
“This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.”
FAVOURABLE FINANCING CONDITIONS
“While our latest staff projection exercise foresee a gradual increase in underlying inflation pressures, it confirms that the medium-term inflation outlook remains broadly unchanged from the staff projections in December 2020, and below our inflation aim.
“In these conditions, preserving favourable financing conditions over the pandemic period remains essential.”
UNDERLYING INFLATION SUBDUED
“Inflation has picked up over recent months, mainly on account of some transitory factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of weak demand and significant slack in labour and product markets.”
“The rebound in global demand and additional fiscal measures are supporting global and euro area activity. But persistently high rates of coronavirus infection, the spread of virus mutations and the associated extension and tightening of containment measures are weighing on euro area economic activity in the short-term.”
OVERALL ECONOMIC OUTLOOK
“While the overall economic situation is expected to improve over 2021, there remains uncertainty surrounding the near-term economic outlook, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns.”