Transcript of the introductory statement from the press conference - 1 August 2013

GOVERNOR

As you already know, we decided unanimously to leave the repo rate unchanged at technical zero, where we are evidently going to keep it for a relatively long time, at least until inflation pressures increase significantly. Another outcome is that compared to our previous meeting the likelihood of launching foreign exchange interventions to ease monetary policy has increased. When you see the situation report, you’ll understand why. Let me make two remarks here. This was the first time we had a formal vote on foreign exchange interventions. In line with current practice we do not publish the ratio of the votes cast or who voted for what. But we had a vote, and I think I can say that even some members who are against interventions are evidently shifting their opinion towards a higher probability of interventions.

As we already said, very consistent with the forecast is technical zero and a rise from this level only in 2015. The forecast very clearly shows a need to ease monetary policy using other instruments. We identified no increase in inflation pressures and no tangible risk of an increase in inflation pressures. The balance of risks of the new forecast is already assessed as being skewed towards easier monetary conditions. In other words, by risk we primarily mean energy prices, which are also connected with the government’s decision-making on renewable energy sources, green energy.

As regards the summary of the forecast, food prices basically remain the main source of inflation. The contribution of tax changes has decreased and the domestic economy remains significantly anti-inflationary. Headline inflation will therefore be below the target of 2%. Monetary-policy relevant inflation will even be below the lower boundary of the tolerance band. The return to the target will be rather gradual. As for GDP, we expect it to decline by 1.5% this year. Next year it will hopefully start rising finally, and in 2015 we expect this growth to accelerate. As I already said, consistent with the forecast are rates at technical zero for a very long period of time.

Turning to the main factors entering the forecast, you can see them yourselves. This is the euro area. Basically all the developments in it are more or less pointing downwards or are unchanged. Interest rate expectations are less certain than a few weeks ago.

As for the second part of the external environment, we observe no significant changes in energy commodities or the euro-dollar exchange rate.

This is our forecast for headline inflation. At the monetary policy horizon, and in fact over the entire period from today, the mean expectation of inflation is below the target, which it approaches only after the first quarter of 2015.

Monetary-policy relevant inflation, as we said, will even be below the lower boundary of the tolerance band.

GDP will start increasing slowly in quarter-on-quarter terms, but will remain negative in year-on-year terms until the end of this year. Next year the expected recovery should occur.

As regards the forecast for three-month market interest rates, the forecast assumes – because this is an assumption of the forecast – that they will be close to zero, which of course implies that our policy rates will be deeper in negative territory. This cannot be achieved, of course, so we must also understand the exchange rate forecast in this direction. It expects a very slight appreciation somewhere beyond the forecast horizon, although of course the current exchange rate consistent with the monetary conditions expected by the forecast is weaker than this. This is simply an assumption of the model, which works with negative interest rates.

By comparison with the previous forecast, price expectations have gone down. GDP expectations are down this year and slightly up next year. Interest rate expectations have gone down and exchange rate expectations are slightly weaker in this forecast. But as I said, in order to be in line with the monetary conditions, the exchange rate must be even weaker than in the forecast.

The risks to the forecast are therefore skewed towards a need for easier monetary conditions. As I said, energy prices are one of the main risks. The other one is the risk of unfulfilled expectations of a recovery in the euro area, which is not negligible either.