DJ DOKUMENTATION/Einleitende Bemerkungen von ... (zwei)
The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. Over recent quarters, these risks appear to have become manifest as inflation has trended upwards.
Against this background, the continued strength of monetary dynamics represents an important signal of the risks to price stability over the medium term that we have been addressing through our actions since end-2005, including today's move.
More specifically, annual M3 growth has remained very vigorous in recent months, supported by the continued strong growth of MFI loans to the private sector. Although annual M3 growth of still above 10% overstates the underlying pace of monetary expansion, owing to the impact of the flat yield curve and other temporary factors, nonetheless, even after taking such effects into account, a broad-based assessment of the latest data confirms that the underlying rate of money and credit growth remains strong.
The current structure of yields has triggered substitution both within and into the broad monetary aggregate M3, leading to a pronounced decline in annual M1 growth and very rapid increases in time deposits. At the same time, higher short-term interest rates have served to moderate the growth of household borrowing, although cooling housing markets in several parts of the euro area have also played a substantial role in this regard.
However, the growth of bank loans to non-financial corporations has remained very robust despite the rises in short-term rates. While some moderation can be expected in the future in the light of tightening financing conditions and more moderate economic growth, bank borrowing by euro area non-financial corporations grew at an annual rate of 14.2% in May 2008, and the flow of loans in recent months has been strong.
Not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium-term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. Moreover, a thorough assessment of the money and credit data has provided an important insight into bank behaviour and financing conditions. In particular, the strength, maturity and sectoral composition of bank borrowing suggest that, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the tensions.
To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of increasing upside risks to price stability over the medium term, in a context of very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply. At the same time, the economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate ongoing real GDP growth when the high volatility of growth rates in the first half of this year is taken properly into account.
Against this background and in full accordance with our mandate, it is imperative that we prevent broadly based second-round effects and counteract the increasing risks to price stability. We emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability, thereby preserving purchasing power in the medium term and supporting sustainable growth and employment in the euro area.
On the basis of our current assessment, the monetary policy stance following today's decision will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead.
Regarding fiscal policy, budgetary consolidation targets are at risk in a number of euro area countries. Moreover, the risk of countries' budget deficits coming close to or even exceeding the 3% of GDP reference value has increased. The Governing Council therefore reiterates its strong support for a rigorous implementation of euro area governments' 2008 budgets and a prudent design of fiscal policy plans for 2009, in line with the agreement in the Eurogroup in May 2008.
Achieving and maintaining sound structural fiscal positions is essential to ensure the sustainability of public finances as well as to create scope for the free working of automatic stabilisers in all euro area countries and thereby contribute to the smoothing of cyclical fluctuations.
As regards structural reforms, we reiterate our full support for all efforts to enhance competition, increase productivity and foster market flexibility. In view of the marked increase in international food commodity prices, removing impediments to competition at the various stages of the food supply chain in the retail and distribution sectors would benefit European consumers through lower prices.
As regards labour markets, let me direct your attention to the ECB's 2008 Structural Issues Report, which was recently submitted to the European Parliament. It emphasises the generally favourable labour market developments in the euro area over the last decade but equally points out the urgent need to counter the ageing-related reduction in the labour force, in particular by increasing employment in all groups of society, by making labour markets more flexible and by enhancing investment in education and training.
Webseite: http://www.ecb.int DJG/hab
(END) Dow Jones Newswires
July 03, 2008 08:59 ET (12:59 GMT)
Copyright (c) 2008 Dow Jones & Company, Inc.
