FRANKFURT (MNI) – The following is the first part of the verbatim
text of the opening 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, the Vice-President and I are very pleased to
welcome you to our press conference. Let me wish you all a Happy New
Year. We will now report on the outcome of todays meeting of the
Governing Council.

Based on its regular economic and monetary analyses, the Governing
Council decided today to keep the key ECB interest rates unchanged,
following the 25 basis point decreases on 3 November and 8 December
2011. The information that has become available since early December
broadly confirms our previous assessment. Inflation is likely to stay
above 2% for several months to come, before declining to below 2%. At
the same time, the underlying pace of monetary expansion remains
moderate.

As expected, ongoing financial market tensions continue to dampen
economic activity in the euro area, while, according to some recent
survey indicators, there are tentative signs of a stabilisation in
activity at low levels. The economic outlook remains subject to high
uncertainty and substantial downside risks. In such an environment,
cost, wage and price pressures in the euro area should remain modest and
inflation rates should develop in line with price stability over the
policy-relevant horizon.

Overall, it is 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. A very thorough analysis of all incoming data and
developments over the period ahead is warranted.

The provision of liquidity and the allotment modes for refinancing
operations will continue to support euro area banks, and thus the
financing of the real economy. The extensive recourse to the first
three-year refinancing operation indicates that our non-standard policy
measures are providing a substantial contribution to improving the
funding situation of banks, thereby supporting financing conditions and
confidence. In addition, we are actively working towards the
implementation of all the measures announced at our December meeting,
which should provide additional support to the economy. As stated on
previous occasions, all the non-standard monetary policy measures are
temporary in nature.

Let me now explain our assessment in greater detail, starting with
the economic analysis. Real GDP in the euro area grew by 0.1% quarter on
quarter in the third quarter of 2011. At present, a number of factors
seem to be dampening the underlying growth momentum in the euro area.
They include moderate global demand growth and weak business and
consumer confidence in the euro area. Domestic demand is likely to be
dampened by the ongoing tensions in euro area sovereign debt markets, as
well as the process of balance sheet adjustment in the financial and
non-financial sectors. At the same time, we continue to expect euro area
economic activity to recover, albeit very gradually, in the course of
2012, supported by developments in global demand, very low short-term
interest rates and all the measures taken to support the functioning of
the financial sector.

In the Governing Councils assessment, substantial downside risks
to the economic outlook for the euro area continue to exist in an
environment of high uncertainty. They notably relate to a further
intensification of the tensions in euro area debt markets and their
potential spillover to the euro area real economy. Downside risks also
relate to the global economy, protectionist pressures and the
possibility of a disorderly correction of global imbalances.

With regard to price developments, euro area annual HICP inflation
was 2.8% in December 2011, according to Eurostats flash estimate, after
3.0% in the preceding three months. This decline was expected and
reflects a downward base effect stemming from energy prices. Inflation
rates have been at elevated levels since the end of 2010, mainly driven
by higher energy and other commodity prices. Looking ahead, they are
likely to stay above 2% for several months to come, before declining to
below 2%. This pattern reflects the expectation that, in an environment
of weaker growth in the euro area and globally, underlying cost, wage
and price pressures in the euro area should remain modest.

The Governing Council continues to view the risks to the
medium-term outlook for price developments as broadly balanced. On the
upside, the main risks relate to further increases in indirect taxes and
administered prices, owing to the need for fiscal consolidation in the
coming years, and possible increases in commodity prices. The main
downside risks relate to the impact of weaker than expected growth in
the euro area and globally.

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