Transcript of the introductory statement from the press conference

4 November 2010

GOVERNOR

You already know how the voting turned out. Rates therefore remain unchanged. And beyond that, we are living at a beautiful time when it seems that headline and monetary policy-relevant inflation will be close to the inflation target at the monetary policy horizon, which sounds almost like the Bank Board’s Christmas wish come true, I would like to add that we are in a way returning to the past. I’ll show you shortly what position it is in.

The risks of the forecast are balanced. Stable rates. Growth later on.

I said that we are returning to the past, albeit for different reasons. We current expect that we are emerging from recession. Economic growth, however, will slow. Phenomena that we used to know under the name of “W” will therefore appear more than before. This is a piece of the past.

If we look at the external environment, we can see that the external environment views this possibility similarly, although not so much. I should point out that the order has reversed compared to the previous presentations. That means that the first column shows the previous forecast and the other one the differences from, let’s say, the journalists’ approach to the matter. It normally chronologically discloses the new one. We believe this better shows what is going on.

Producer prices are rising somewhat. We can see an upswing in 2010 and 2011. But the end of the famous second half of the “W” can be seen in the light blue columns, whereas before in the middle we expected – well, not us, Consensus Forecasts and the consensus for the euro area expected smooth GDP growth year on year.

As to prices, of course, the expectations – higher expectations – for oil prices are being offset by depreciation of the dollar – more than enough for it to be altogether not all that interesting for us.

Now I’m getting to inflation. This is the Bank Board’s Christmas present come true. I don’t think I can remember an image like this – really so close to the inflation target – in my entire almost six years at the central bank. For monetary-policy relevant inflation the image is rather more traditional. In other words, at the beginning we are being aided by changes in tax rates, which we should not consider too much. Nevertheless, here too we are basically reaching the target at the horizon.

As to GDP, and it is important to say this, we can see a more pronounced “W” than in the previous forecast, or rather a re-appearing one.

As I said, there are no major changes in interest rates on the horizon. A return to growth sometime from the middle of next year or thereabouts. This depends on numerous decisions that still await us.

For the exchange rate – a continuing slight appreciation trend, which should be sustainable. But I should point out above all that the uncertainty surrounding the exchange rate is always large.

Looking at it from the point of view of comparisons – and I think it can be seen quite nicely – inflation expectations are generally stable from one forecast to the next. Nonetheless, the pressures might not be as great in the future – at least in the more distant future – as we previously thought. However, the difference is pretty negligible with respect to the forecast period. The light blue charts for GDP show again at least a visible second half of the “W”. For interest rate expectations, by contrast, the rise has shifted – that could be seen in the previous chart – and is not as pronounced as we originally expected. The differences for the exchange rate are negligible.

If we talk about it – and I’ll come to this at the end – although we are saying that the risks to the forecast are balanced and that we can currently see only two, very weak, risks – the inflationary risk of commodity and domestic agricultural producer prices and the anti-inflationary impacts of fiscal consolidation, I’m afraid that these theses rather conceal the fact that the general risks we see involve the possibility of higher inflation being renewed for some reason. Higher demand and optimism in large economic centres could be renewed. Or, on the contrary, it might turn out that the uncertainties in the world are so large that they hinder the recovery. We actually come back to the situation when the risks are balanced. We cannot see anything identifiable, but we suspect that things could develop very much more differently than we assumed two, two and half months ago. In other words, we are returning in time in the sense also that the basic uncertainties we can see are slightly higher than in previous periods. I consider it important to emphasise this. In that sense it is a return to the past. As I said, there is – in a way – a return to the past also in that the second half of the “W” is starting to appear, even though the second half is much shallower than the first. I should point out that there is a fundamental difference. Whereas in the past we were talking about the high risks and the “W” stemming from the not entirely fortunate decisions of, let’s say, the managerial elites of large financial groups first and foremost, now we are talking more about risks stemming from major macroeconomic policy makers in the global economy, be they fiscal policy or monetary policy makers.