Good afternoon and welcome to the ECB press conference with President Lagarde and Vice President de Guindos. My name is Wolfgang Proissl. We also have participants who are here remotely. When they ask questions, I ask them to turn on their cameras and their microphones. With that, hand over to you, President Lagarde, please. Thank you very much, Wolfgang, and good afternoon to all of you. The Vice President and I welcome you to our press conference. The Governing Council decided today to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing. Wage growth is gradually moderating, and firms are absorbing part of the rise in labor costs in their profits. Financing conditions remained restrictive, and our past interest rate increases continue to weigh on demand, which is helping to push down inflation. But domestic price pressures are strong and are keeping services price inflation high. We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. We consider that the key ECB interest rates are at levels that are making a substantial contribution to the ongoing disinflation process. Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary. If our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission were to further increase our confidence that inflation is converting to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. We are not pre-committing to a particular rate path. The decisions taken today are set out in a press release available on our website. I will now outline in more detail how we see the economy and inflation developing, and will then explain our assessment of financial and monetary conditions. The economy remained weak in the first quarter, while spending on services is resilient. Manufacturing firms are facing weak demand and production is still subdued, especially in energy-intensive sectors. Surveys point to a gradual recovery over the course of this year, led by services. This recovery is expected to be supported by rising real incomes resulting from lower inflation, increased wages, and improved terms of trade. In addition, the growth of euro area exports should pick up over the coming quarters as the global economy recovers and spending shifts further towards tradables. Finally, monetary policy should exert less of a drag on demand over time. The unemployment rate is at its lowest level since the start of the euro. At the same time, the tightness in the labor market continues to gradually decline, while, with employers posting fewer job vacancies. Governments should continue to roll back energy-related support measures so that disinflation can proceed sustainably. Implementing the EU's revised economic governance framework fully and without delay will help governments bring down budget deficits and debt ratios on a sustained basis. National fiscal and structural policies should be aimed at making the economy more productive and competitive, which would help to reduce price pressures in the medium term. At the European level, an effective and speedy implementation of the Next Generation EU program and the strengthening of the single market would help foster innovation and increase investment in the green and digital transition. More determined and concrete efforts to complete the Banking Union and the Capital Markets Union would help mobilize the massive private investment necessary to achieve this, as the Governing Council stressed in its statement of March the 7th, 2024. Inflation has continued to decline from an annual rate of 2.6% in February to 2.4% in March, according to Eurostat's flash estimate. Food price inflation dropped to 2.7% in March from 3.9% in February, while energy price inflation stood at -1.8% in March after -3.7% in the previous month. Goods price inflation fell again in March to 1.1% from 1.6% in February. However, services price inflation remained high in March at 4%. Most measures of underlying inflation fell further in February, confirming the picture of gradually diminishing price pressures. While domestic inflation remains high, wages and unit profits grew less strongly than anticipated in the last quarter of 2023. Unit labor costs remained high, in part reflecting productivity growth. More recent indicators point to further moderation in wage growth. Inflation is expected to fluctuate around current levels in the coming months and to then decline to our target next year, owing to weaker growth in labor costs, the unfolding effects of our restrictive monetary policy, and the fading impact of the energy crisis and the pandemic. Measures of longer-term inflation expectations remain broadly stable, with most standing around 2%. The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia's unjustified war against Ukraine and the tragic conflict in the Middle East are major sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation comes down more quickly than expected and rising real incomes mean that spending increases by more than anticipated, or if the world economy grows more strongly than expected. Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increase by more than expected or profit margins prove more resilient. By contrast, inflation may surprise on the downside if monetary policy dampens demand more than expected or if the economic environment in the rest of the world worsens more than expected, more than expected. Market interest rates have been broadly stable since our March meeting, and wider financing conditions remain restrictive. The average interest rate on business loans edged down in February to 5.1%, coming from 5.2% in January. Mortgage rates were 3.8% in February, down from 3.9% in January. Still elevated borrowing rates and associated cutbacks in investment plans led firms to reduce their demand for loans in the first quarter of 2024, as reported in our latest bank lending survey. Credit standards for loans remained tight, with a further slight tightening for lending to firms and a moderate easing for mortgages. Against this background, credit dynamics remain weak. Bank lending to firms grew marginally faster in February at an annual rate of 0.4%, up from 0.2% in January. Growth in loans to households remained unchanged in February at 0.3% on an annual basis. Broad money, as measured by M3, grew at a subdued rate of 0.4% in February. So, in conclusion, the Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. We consider that the key ECB interest rates are at levels that are making a substantial contribution to the ongoing disinflation process. Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary. If our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level of and duration of restriction. And we are not pre-committing to a particular rate path. In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission. We are now ready to take your questions. Thank you, President Lagarde. And the first question goes to Jana Randow of Bloomberg. Yana, please. Good afternoon. Thank you very much for taking my question here. There you are. I heard you loud and clear on the confidence needing to increase for restriction to be removed. And I also heard you saying that you are not pre-committed to a specific policy path. I was trying to read as clearly as possible. There you go. Message received. But I do want to ask you whether you believe that such levels of confidence that you talk about can be reached by the time you next gather to set policy in June. And as a side note to that, I would be interested in knowing whether there were some colleagues around the table today that thought time might have already come today. And the second question. And I know that you are going to say we set policy for the eurozone, and I appreciate that. But I'm wondering whether surprisingly hot inflation data out of the U.S. and the reactions it triggered over the past hours or 24 hours or so have changed in any way the way you think about the ECB's policy path going forward. Thank you. Well, thank you so much. You know, you are the first question, but you seem to be covering quite a bit of ground that maybe others wanted to cover as well. I'll try to respond briefly to give others a chance as well to ask similar questions. You heard me loud and clear indicate in that new sentence, which is prominent in our monetary policy statement that and I'll read again, if our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. It's an important sentence because it really describes the mechanics and it, you know, it better clarifies our reaction function and the process through which we are engaging. I have said previously that in April we get some information and some data and we looked at all that. In June we know that we will get a lot more data and a lot more information. We will also have a new projection which will incorporate and be informed by all that will be published before projection is completed. We are data dependent. We will be looking at all this information, all this data and the projection results that will be produced by the entire Eurosystem, not just the ECB. Then we will determine whether all of that confirms our hope that inflation returns to target in a sustained manner and if, as a result, our confidence is sufficiently reinforced. I think that's really the mechanics that we will adopt, that we have resolved to adopt and that we will follow in the coming meetings. Now, you asked me whether everybody was exactly on the same page. Truth be told, a few members felt sufficiently confident on the basis of the limited data that we received in April. It was just a few members, and they agreed to rally to the consensus of a very, very large majority of the governors who were comfortable with the need to reinforce confidence when receiving a lot more data in June. Your third question, because you asked the third question. You asked whether the U.S. CPI number received yesterday had any bearing on subsequent market development. I have said in the past that we are data dependent. We are not Fed dependent. That was not the Fed. That was CPI numbers. And obviously, anything that happens matters to us and will, in due course, be embedded in the projection that will be prepared and released in June. And, you know, the United States is a very large market, a very sizable economy, a major financial center as well. So all that finds its way into our projections. Thank you. Thank you, Madam Lagarde. The next question for CNBC, Annette Weisbach. Annette, please. President Lagarde, thank you very much. I have a question referring as well to the Fed, because clearly if the Fed doesn't cut, we'll probably see that in our exchange rate, the euro exchange rate to the US dollar. So how much is that of a concern to you that the euro exchange rate could actually fall to parity or below? And what does it mean for inflation? Then did you discuss shrinking the balance sheet a little bit faster than we are then than currently planned? Because clearly that's also a policy tool. Thank you. You know, on first of all, I would not speculate what other central banks are or are not going to do. And I think that. As I just responded to the previous questions, consequences in terms of impact on price stability, impact on inflation, whether it is imported inflation or otherwise, all that, of course, needs to be taken into account and is monitored very carefully and finds its way into our projection. So all of that will be included, embedded, monitored and taken into account in our projection. But, you know, we don't target exchange rate. We don't comment on exchange rate. And I'm not going to go any further than that. I would simply mention that, you know, there are multiple channels through which influence can be exercised. It's not just through exchange rates. I think there are other channels. The size of our balance sheet has quite significantly reduced already. And you, I'm sure you have followed that very carefully. The entire very large TLTRO reimbursement that was coming due in March has been entirely reimbursed, of course. And additional over EUR 30 billion has also been added to the reimbursement. In addition to that, given the APP gradual runoff, we also reduce our balance sheet by an average of about EUR 30 billion per month. And that process is ongoing and will continue to happen as anticipated, as predicted and as determined by the maturity of those bonds that come to runoff. And then we will move to the reduction of the PEPP reinvestment until from the 1st of July until the end of December. And then that's that's the plan. But there is no further discussion on that. Thank you, Madam Lagarde. And the next question for Francesco Canepa of Reuters. Francesco, please. So inflation was on the way up in 2021, 2022, a global phenomenon. Or so it turned out, even though initially you guys were not expecting it to spread to the eurozone so much. You guys, you refer to the Governing Council? Yeah, the ECB. The projections did not expect inflation to be high in the eurozone as it was in the U.S. So what makes you think that this time around it will be different and the eurozone can diverge from the U.S. and with where inflation rates are kind of refusing to fall further? Yeah, that's it. Well, as a second question, if I may then, is your confidence about the condition being met in June lower than it was, for example, a month ago as you were speaking at the ECB Watchers? Or is it or is it intact? Well. Thank you for picking up on the Watchers speech. I think that's the one that you're referring to, in which I tried to describe as accurately as possible the sequences that we went through, the hiking cycle, the holding cycle, and the prospect of the diving down cycle. And I think that. Most, if not all, that I have said in that speech. Still holds to this day. I describe, I think, in very specific terms what the confidence level should be and on what basis we're going to nurture that confidence and reinforce it over the course of time in that process. So, you know, I'm not going to comment on whether I'm more or less confident. I think that what we are saying in the MPS today is that if and I'm not going to bore you with repeating, but if the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission would further increase our confidence that inflation is sustainably at 2% as we anticipate, then it would be appropriate. So that stands very much. And it's completely the continuation of the Watchers speech that I gave about 10 days ago. So you asked me about the distinction that we should or that we should not draw between euro area inflation and US inflation. And why would we not be entirely US inflation dependent in a way or US CPI dependent? And should we take our cue from that? You know, we are operating in the euro area with the euro area economy for the benefit of the Europeans. Our objective is price stability and we have to determine our monetary policy decisions on the basis of the data that are produced by the euro area, on the basis of the global environment. And that includes obviously the United States, but it also includes China, which matters. It also includes Japan, which matters, and a lot of emerging market economies that also have a bearing. But we focus predominantly on the territory for which we have responsibility for monetary policy. As you know, and as I'm sure all of you in the room know, the nature of inflation in the euro area was different from the nature of inflation in the United States, notably. The The drivers of it were different. The fiscal response was different. The consumption by the U.S. consumers is of a different nature. Investments were different. So I don't think that we can, you know, draw conclusions on, you know, based on an assumption that the two inflations are the same. They are not the same. The two economies are not the same. The political regimes are not the same. The fiscal policies are different. And as a result of that, we have to focus on what we have jurisdiction for, which is the euro area. Taking into account what happens in the rest of the world, but not assuming that what happens in the euro area will be the mirror of what happens in the United States, because we are looking at two different things. Thank you, President Lagarde. And the next question goes to Martin Arnold from the Financial Times. Martin. Hello, President Lagarde. Two questions for you. First, to return to the theme of transatlantic divergence. If this divergence on monetary policy that is expected materializes, does that mean that the ECB is likely to have to ease policy more because of a spillover from the US, tighter financial conditions from the US? Or does it mean that you're likely to do less because of foreign exchange markets potentially putting upward pressure on inflation in the euro area? Second question is on energy markets. We've seen a roughly 10% increase in oil prices in recent weeks. How big a concern for you is that? And could that derail the potential rate cut in June? Thank you. Thank you very much for your two questions. In many ways, you've answered the first question, or you at least gave me the elements of my answer to your questions. We are data dependent. We will operate meeting by meeting, and we will take into account all the data that actually matter and how they unfold and develop and affect our economy. As a result of that, I cannot precommit to any route for easing more, easing less, unless and until we have the data and we can analyze the data. So that will take its course, as you know, the events unfold. As I said, I'm not going to speculate on the monetary policy stance and decisions of another central bank. Thank you for your second question on the energy market. There is one particular segment in the monetary policy statement that I wouldn't want to let go unnoticed, because I think it's important, particularly in relation to energy prices. That's the portion that relates to inflation. I'll read it again for you. Inflation is expected to fluctuate around current levels in the coming months and to then decline to our target next year, owing to weaker growth in labor costs, the unfolding effect of our restrictive monetary policy, and the fading impact of the energy crisis and the pandemic. A lot of that, those fluctuations that we refer to in that particular paragraph. will actually be associated with the very low energy costs that we had in two episodes over the course of 2023. And obviously, the price of energy, as we see it unfolding in the weeks and months to come, will have a bearing related to that base to which prices are compared. So inflation decline, which we have observed so far, is not going to be linear. And we will have fluctuation around current level based on our projections until it declines to our target in mid-2025. And energy prices obviously will matter in that respect. Thank you, President Lagarde. And the next question goes to Isabella Bufacchi of Il Sole 24 Ore. Isabella, please. Thank you. Thank you for the opportunity. I have one question about the ECB not precommitting to a particular rate path, but could we still count on a path of seasons, for example, going from a restrictive season to what you said in the past could be the gradual normalization process? And my second question is on TPI, just because maybe there start to be some small tensions in the markets as several countries may qualify for excessive deficit procedures. What is the impact of this event, if any, on the transmission protection instrument eligibility? As the first criteria of this eligibility does mention the excessive deficit procedures. Thank you. Thank you very much for your two questions. The ECB is a bank of all seasons. And I don't think that we can be tied to any particular season. We will be data dependent. And if the data continue to. To move in this direction of the disinflationary path that we see, then progress will be continued as well. In the path that we adopt. But this is going to be data dependent. And that is the reason why we state very clearly in the monetary policy statement that we are not precommitting to a particular rate path. But the direction is rather clear, but there is no precommitment to any particular path, and it will all depend on the data that come about. Now, on your TPI question. There is a very clear press release that we have posted and that stands. Which I'm not going to comment upon yet again, but the excessive deficit procedure is one of the components of the four components that we assess when we determine eligibility. It's an alternative condition that is indicated in that particular segment, which is taken into account, will be taken into account by the Governing Council. I think you have the answer right there. Thank you, Madame Lagarde. The next question goes to an online participant, and it's Jean-Philippe Lacour of Agence France-Presse. Jean-Philippe, please. Yes. Can you hear me? Yes. This time, yes. Fantastic. I have only one question because all the other ones were already asked and it refers on budgetary policies. As you know, Germany is already pursuing a restrictive budgetary policy, and Italy and for sure France will also have to do, given their public deficits larger than expected. Would it be a different question than the previous one? But would this situation of restrictive policy offer a reason for the ECB to maybe accelerate future rate cuts? That is my question. Well, thank you so much for your question. And on fiscal affairs, I'm going to limit myself to the comments that we included in the monetary policy statement where we indicate that government should continue to roll back energy-related support measures so that disinflation can proceed sustainably. And of course, we then say that implementing the EU's revised economic governance framework fully and without delay will help government bring down budget deficit and debt ratio on a sustained basis. We had the privilege of Valdis Dombrovskis being with us during the Governing Council meeting this morning, and I think all governors were very pleased to hear him confirm that the revised economic governance framework will be put to a vote to the European Parliament before the end of their session, which I think has another two weeks to go. So this is good news to the extent that there will be a framework within which governments are expected to operate and which will be guiding principles and helpful from our monetary policy standpoint. Thank you. Thank you, Madame Lagarde. And the next question goes to Carlo Martuscelli of Politico. Carlo, please. Thank you very much for taking my question. Good afternoon. First question I wanted to ask you is that services inflation is still very sticky as flat line for the last five months and the underlying momentum is now accelerating. So would you say that the ECB could theoretically still go ahead with a cut in June if services inflation sticks at around 4%? And my second question is if you can give us a bit of color of the discussion within the Governing Council around the balance of risk surrounding inflation. Some of your colleagues have suggested that the balance of risk are now more balanced. Where do you stand? Thank you. So thank you for the two questions. On your first question, you are right. And I think we point out very clearly in the monetary policy statement that services inflation is still holding at high levels. It has been at 4% for the last 5 months. Domestic inflation, which comprises a lot of services as well, is at 4.5% and has been there for the last 3 months, if I recall. And this is a segment and those are numbers and indicators that we're going to monitor very carefully, that we will look at very carefully. The momentum is something that we will be also very attentive to, but we are not going to wait until everything goes back to 2% to make the decisions that will be necessary in order to make sure that inflation returns to 2% sustainably, at target in a timely manner. So it's inevitable that some items will be slightly higher. And we know that, for instance, if you look at the disaggregation of items, goods, for instance, are at—I forgot whether it's 1.7 or 1.1, but it has gone down. It's 1.1. It was 1.6 in February. So it's inevitable that some items and some segments will be at higher levels, and we will look at all of them to make our determination and to decide whether on the basis of that assessment we are confident enough. So that's the first point. Look on the balance of risk. I know one or two governors who are keen on this balance of risk concerning inflation, but we've always tried to stay away from that in relation to inflation. Historically, historically we have. Determined whether it was to the upside, to the downside, or broadly balanced or broadly balanced in relation to activity, not in relation to inflation. And what we prefer to do as a matter of principle is identify those components that will be bringing an upside to the risk and those that will bring a downside to the risk. That's what we have done repeatedly in the monetary policy statement. We do that yet again. And, you know, when you look at the level of uncertainty around, it's probably the right approach to do so in relation to inflation. Thank you, President. And the next question goes to Stefan Reccius of Handelsblatt. Stefan, please. Thank you for the floor. One question is a follow up on the oil prices. How much of an upward concern is that when it comes to inflation going forward? And my second question is on the BLS, the bank lending survey that you mentioned. What is your main takeaway from that? Is it that there is less demand by companies or is it more that mortgages and consumer credit has picked up a bit? Thanks. Well, thank you very much for your two questions on the oil prices. It has increased, as was said by one of your colleagues, by 10% in the most recent weeks. And it's obviously an item which matters a lot. We. have learned from the recent shocks that energy costs play a significant role, and we are very attentive to those evolutions. We are largely informing our assessment on the basis of futures. So we look at how futures evolve as well. It's not just the price of the barrel of Brent that we look at. We also anticipate, try to anticipate as well as is possible. And it's not perfect, but we try to use futures as an indicator of where the markets are seeing prices of oil for the future. Thank you for your second question, because the Bank Lending Survey is always informative, but it's a survey and it indicates what the banks assess, assume, expect from their customers, both the corporate customers and the households, the people predominantly mortgage and not and a bit on consumption, but predominantly mortgage. So we have that. And And we also have the hard data, which is interest rates that are offered to those customers. And you have the volume of loans on an annual basis. So if you only look at the Bank Lending Survey, what you see is the anticipation by the banks that demand will be slightly lower, both on the corporate and on the household side. If you look at volume, there is a slight, not a major, but a slight uptick in the volume of loans to corporates and a slight uptick in the volume of loans offered to households, stable compared with the last month. And final point on both corporate loans and loans to households, we have a slight decline in the interest rate that is offered to the borrowers. So you can tell you can deduct from that that the financial sector is expecting that financing costs are likely to be smaller in the future. It's the beginning and in many of those numbers, data indicators that we have, we see positive development, but it's the beginning of developments. And we, as I said earlier, in response to the first question, we want to reinforce that confidence that things are going in the right direction, both in terms of growth, but more importantly, in terms of inflation decline. Thank you very much, Madame Lagarde. And the last question today goes to Andrés Stumpf of Expansión. Andrés, please. Thank you. I would like to know what fluctuations on the current inflation number could be tolerated if they come from supply shocks and not from the robust demand and maybe going again above 3%. And I mean this because, as you have just mentioned, last inflation spike started as a supply shock. And a second question, public debt spreads are as tight as I can remember. Are you glad that you could deliver your restrictive monetary policy without creating big tensions, or do you fear that this will incentivize deficits? Thank you. So on your first question. We know that there will be fluctuation. That's the reason why we put it in the monetary policy statement. We know that we are not going to be a linear decline on inflation over the course of the next month's quarter. But what our projections are telling us is that we will have those bumps on the road, if you will, but with reaching the target in mid-2025. So return to 2% in mid-2025. Between now and 2025, there will be ups, there will be downs, there will be ups. And as I said, a lot of that is related to the base effects that result from the two significant change in energy prices in the course of 2023. How much can we tolerate? I think what is really important is the data. It's the overall data. It's the projection we, you know, have embedded in our projection of last March, those bumps on the road. It is in there. It's in the baseline. What we need to see is how much away from those bumps embedded in the baseline we are likely to go if we are facing supply shock, as you suggested. But bumps will be there. It will not be linear. Bumps are embedded in the projection of March. We will, you know, take stock of that in June as well and update our projection at that point in time. You're on you. Look on your second question. And given that you are the last question and without being triumphant and without celebrating anything yet, but what we are observing and. What we are observing is a decline of inflation, a disinflationary process that is in progress, that is. Comforting us that the monetary policy that we have adopted so far has contributed significantly to this and that we will continue to operate on the basis of the three criteria. That I have mentioned now several times, which are in the monetary policy statement, being particularly attentive to wages and the evolution of wages, which constitute a large contributor to services. Close attention to profits to make sure that unit profits actually. Absorb as much as possible the wage increases that will inevitably happen. We will also continue to be very attentive to productivity, which is also something that we expect will improve in the course of 2024. With that, thank you very much. Thank you. Thank you very much. That brings the press conference to an end. The next press conference is scheduled for the 6th of June. Up until then, all the best. Thank you very much.