FRANKFURT (MNI) – The following is the first part of a verbatim
text of the introductory statement by European Central Bank President
Mario Draghi at his press conference following today’s monthly
monetary policy meeting of the ECB’s Governing Council:

Ladies and gentlemen, welcome to our press conference. Today is the
first time that I have had the privilege and pleasure of chairing the
meeting of the Governing Council of the ECB. I am delighted to proceed
now with our well-established practice of real-time communication and to
report on the outcome of our meeting, together with the Vice-President.

Based on its regular economic and monetary analyses, the Governing
Council decided to reduce the key ECB interest rates by 25 basis points.
While inflation has remained elevated and is likely to stay above 2% for
some months to come, inflation rates are expected to decline further in
the course of 2012 to below 2%. At the same time, the underlying pace of
monetary expansion continues to be moderate. After todays decision,
inflation should remain in line with price stability over the
policy-relevant horizon. Owing to their unfavourable effects on
financing conditions and confidence, the ongoing tensions in financial
markets are likely to dampen the pace of economic growth in the euro
area in the second half of this year and beyond. The economic outlook
continues to be subject to particularly high uncertainty and intensified
downside risks. Some of these risks have been materialising, which makes
a significant downward revision to forecasts and projections for average
real GDP growth in 2012 very likely. In such an environment, price, cost
and wage pressures in the euro area should also moderate; todays
decision takes this into account. Overall, it remains essential for
monetary policy to maintain price stability over the medium term,
thereby ensuring a firm anchoring of inflation expectations in the euro
area in line with our aim of maintaining inflation rates below, but
close to, 2% over the medium term. Such anchoring is a prerequisite for
monetary policy to make its contribution towards supporting economic
growth and job creation in the euro area.

The provision of liquidity and the allotment modes for refinancing
operations will continue to ensure that euro area banks are not
constrained on the liquidity side. All the non-standard monetary policy
measures taken during the period of acute financial market tensions are,
by construction, temporary in nature.

Let me now explain our assessment in greater detail, starting with
the economic analysis. Real GDP growth in the euro area, which slowed in
the second quarter of 2011 to 0.2% quarter on quarter, is expected to be
very moderate in the second half of this year. There are signs that
previously identified downside risks have been materialising, as
reflected in unfavourable evidence from survey data. Looking forward, a
number of factors seem to be dampening the underlying growth momentum in
the euro area, including a moderation in the pace of global demand and
unfavourable effects on overall financing conditions and on confidence
resulting from ongoing tensions in a number of euro area sovereign debt
markets. At the same time, we continue to expect euro area economic
activity to benefit from continued positive economic growth in the
emerging market economies, as well as from the low short-term interest
rates and the various measures taken to support the functioning of the
financial sector.

In the Governing Councils assessment, the downside risks to the
economic outlook for the euro area are confirmed in an environment of
particularly high uncertainty. Downside risks notably relate to a
further intensification of the tensions in some segments of the
financial markets in the euro area and at the global level, as well as
to the potential for these pressures to further spill over into the euro
area real economy. They also relate to the impact of the still high
energy prices, protectionist pressures and the possibility of a
disorderly correction of global imbalances.

With regard to price developments, euro area annual HICP inflation
was 3.0% in October according to Eurostats flash estimate, unchanged
from September. Inflation rates have been at elevated levels since the
end of last year, mainly driven by higher energy and other commodity
prices. Looking ahead, they are likely to stay above 2% for some months
to come, before falling below 2% in the course of 2012. Inflation rates
are expected to remain in line with price stability over the
policy-relevant horizon. This pattern reflects the expectation that, in
an environment of weaker euro area and global growth, price, cost and
wage pressures in the euro area should also moderate.

The Governing Council continues to view the risks to the
medium-term outlook for price developments as broadly balanced, taking
also into account todays decision. On the upside, the main risks relate
to the possibility of increases in indirect taxes and administered
prices, owing to the need for fiscal consolidation in the coming years.
In the current environment, however, inflationary pressure should abate.
The main downside risks relate to the impact of weaker than expected
growth in the euro area and globally. In fact, if sustained, sluggish
economic growth has the potential to reduce medium-term inflationary
pressure in the euro area.

Turning to the monetary analysis, the annual growth rate of M3
increased to 3.1% in September 2011, up from 2.7% in August. The annual
growth rate of loans to the private sector, adjusted for loan sales and
securitisation, was 2.7% in September, unchanged from August. As in
August, inflows into M3 also reflect the heightened tensions in some
financial markets. In particular, inflows into money market fund
shares/units, as well as into repurchase agreements conducted through
central counterparties, appear to have significantly affected monetary
developments in September. The annual growth rate of M1 increased to
2.0% in September, from 1.7% in August.

On the counterpart side, the annual growth rate of loans to
non-financial corporations and to households in September, adjusted for
loan sales and securitisation, remained broadly unchanged compared with
August, at 2.2% and 2.6% respectively. These figures do not signal that
the heightened financial market tensions have affected the supply of
credit up to September. However, as such effects can manifest themselves
with lags, close scrutiny of credit developments is warranted in the
period ahead. Taking the appropriate medium-term perspective and looking
through short-term volatility, underlying broad money and loan growth
have stabilised over recent months. Overall, the underlying pace of
monetary expansion thus remains moderate.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]