Conference with ECB President Christine Lagarde and Vice President Luis de Guindos.
Announcement: ECB Governing Council decided to lower the three key interest rates by 25 basis points.
Objective: Adjust monetary policy considering updated inflation outlook and economic conditions.
Key Announcements & Decisions
Interest Rate Cut: First in several years, reducing by 25 basis points due to improved inflation outlook.
Current Inflation Status: Fallen by more than 2.5 percentage points since September 2023.
Future Projections:
Headline Inflation: 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
Core Inflation (excluding energy and food): 2.8% in 2024, 2.2% in 2025, and 2.0% in 2026.
Economic Growth: Expected to rise to 0.9% in 2024, 1.4% in 2025, and 1.6% in 2026.
Economic Activity Overview
The Euro area economy grew by 0.3% in Q1 2024.
Services sector expanding; manufacturing stabilizing at low levels.
Employment increased by 0.3% in Q1 2024 with around 500,000 new jobs.
Unemployment rate at 6.4% in April (lowest since the euro's inception).
Fiscal & Structural Policies Recommendations
Aim to make the economy more productive and competitive.
Raise potential growth, reduce price pressures in the medium term.
Implementation of Next Generation EU program, Capital Market Union, and banking union.
Strengthen the single market.
Implement the EU’s revised economic governance framework to control budget deficits and debt ratios.
Inflation Dynamics
Inflation Rates: Increment to 2.6% in May from 2.4% in April.
Food Price Inflation: Decline to 2.6%.
Energy Price Inflation: Increase to approximately 3%.
Goods Price Inflation: Continued decrease.
Services Price Inflation: Rise to 4.1% from 3.7% in April.
Underlying Inflation: Measures declined further in April, indicating diminishing price pressures.
Wages: Rising at an elevated pace, but forward-looking indicators suggest moderation later in the year.
Profits: Absorbing part of the rise in unit labor costs.
Risk Assessment
Economic Growth Risks: Balanced in near term, tilted to downside in medium term.
Weaker global economy, trade tensions, geopolitical risks, unexpected effects of monetary policy.
Inflation Risks: Upside and downside risks due to wages, geopolitical tensions, extreme weather, and monetary policy impacts.
Financial and Monetary Conditions
Market interest rates rose since April meeting.
Financing costs plateaued at restrictive levels.
Bank Lending: Slightly positive growth for firms and households.
Broad Money Growth: Increased to 1.3% in April from 0.9% in March.
Euro area Banks: Resilient but geopolitical risks pose clouds.
Macroprudential Policy: First line of defense against financial vulnerabilities.
Conclusion
Confident in path ahead despite necessary restrictive policy.
Commitment to a data-dependent, meeting-by-meeting approach.
Ready to adjust instruments to ensure inflation returns to 2% in the medium term.
Communication emphasizes resilience and adaptability of monetary policy.
Questions and Answers Highlights
On Rate Cuts & Inflation: Decision based on confidence in continued disinflation, robust inflation projections, and assessment criteria (inflation outlook, underlying inflation, monetary policy transmission).
Geopolitical Risks: Acknowledged as major downside risk factors.
Data Collection & Analysis: Stressed the importance of continuous data monitoring and analysis for future rate decisions.
Growth and Inflation: Persistently aiming to bring inflation to 2% target while balancing economic growth considerations.
Country-Specific Concerns: Addressed divergences among Eurozone countries, reaffirming commitment to overall Euro area stability.
Next Meeting
Next press conference scheduled for July 18th, 2024.