Transcript of the questions and answers from the press conference

In December, when the Bank Board likewise assessed the risks to the fulfilment of the inflation target as balanced, you said at the press conference that the next move in interest rates could be up or down and that the chances on both sides were the same. I’d like to ask whether you assess it the same way today, or whether, given the shifts in global and domestic developments, there has been at least a slight change. Was this mentioned in today’s discussion?

I would assess it exactly the same as last time. Today as well, we discussed whether or not to lower rates. By contrast, we have the Monetary Department’s forecast, which signals an increase in interest rates towards the end of the year. So we are keeping all options open – whether the next step is a cut or a rise – and we will discuss it again at future meetings. But I can confirm that today we did discuss the possibility of lowering rates.

I want to ask about your perception of the state budget deficit – you’ve been warning about it for a long time. I’d like to understand how you view the horizon, because in a recent TV interview you said you would evaluate it only after four years. How has your position changed compared with when you criticised the government for this live on air?

I’m not criticising the government. I’ve been saying the same thing all along. I’m saying that reducing the public finance deficit is a good way to ensure low inflation in the long run.

And the four-year horizon? [inaudible]

I’m not going to evaluate anything. I keep saying the same thing: reducing the public finance deficit is the route to low inflation. I’m not going to interfere in the government’s work – that’s not my role.

I’ll return to the interest rate path. You’re saying that towards the end of the year the baseline scenario implies a rate increase. Yet at the same time you discussed the possibility of, or some space for, a rate cut today. Can you imagine a situation where, in such a short period, rates would first be lowered and then go back up?

That’s a difficult question. Honestly, all options remain open. I can’t specify or signal more. We don’t want to rule anything out. We want only one thing – to ensure we do not repeat the mistake of having 17.5% inflation and having to deal with it afterwards. This Bank Board managed to fix that. For 25 consecutive months we have had inflation at the target, and we don’t want to make the same mistake again. That’s why we are keeping all options open. I can’t be more specific.

A bit more on this. Could you summarise the arguments that came up which might potentially support a rate cut in the near term, and which specific economic indicators you would need to see to justify lowering rates – whether in terms of core inflation or services inflation?

We weren’t discussing a marked rate cut; we were talking only about a slight fine‑tuning of the rate‑cutting cycle. The main argument could be that only the short end of the yield curve would move, while the long end would in our view remain roughly the same, because we want to keep longer‑term rates higher than they used to be. We want them above inflation so that saving pays off rather than spending. I will maintain that stance the whole time. So it would be a minor adjustment, given that inflation is currently below the target and the outlook for headline inflation is roughly at the target. That is why the debate about a modest cut came up.

On the other hand, what we would need to see is a decline in core inflation – mainly the momentum of core inflation going down. We will be watching this very closely to be sure that core inflation is falling so we can deliver sustained fulfilment of the inflation target. That would be the key factor that might lead us to cut rates.

I’d like to ask about your remark that you will be monitoring developments in trade activity between countries – if I quote you correctly. In the TV interview you said that tariffs were not really an important topic. I’d like to understand how these two things fit together.

For assessing interest rate settings and for the outlook for fulfilling our inflation target, what matters is whether the euro area economy will grow more or less in the coming years – whether it will fall into recession or whether there will conversely be a boom in German industry. And to assess that, we need an estimate of how the impact of trade wars will feed through into the trade balance and above all how Europe will cope with the competitiveness challenge versus the USA and Asia. And in my view, that competitiveness challenge will not be decided by trade wars but by how our industry is able to respond to IT services and artificial intelligence, which are booming and driving the economies of the USA and Asia. Europe is lagging somewhat in that area, because today global exports are no longer about exporting goods but about exporting services – and Europe is still falling a bit short on that.

And then trade wars come on top of all this, and all of it together will influence how the economy develops. We must take this into account. We must make predictions, and based on that we will assess the fulfilment of the inflation target and the associated risks.