 You're listening to the ECB podcast, bringing you insights into the world of economics and central banking. My name is Stefania Secola. Today is Thursday, the 11th of April, 2024, and it's time for our regular episode on the monetary policy decisions by our Governing Council. I'll be back at the end of the episode. Now you'll hear President Christine Lagarde explain those decisions in 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. Trade growth is gradually moderating, and firms are absorbing part of the rise in labour 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. The 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. And 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. But 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. Companies 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 tradeable. 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 labour 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 next-generation EU programme and a 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 Market Union would help mobilise the massive private investment necessary to achieve this as the governing council stressed in its statement of March 7, 2024. Inflation has continued to decline from an annual rate of 2.6% in February to 2.4% in March, according to Eurostar's flash estimate. Food price inflation dropped to 2.7% in March from 3.9% in February, while energy price inflation stood at minus 1.8% in March, after minus 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, but unit labour 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 labour 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. 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 to 5.1% in January. Sorry, the 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 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. Would you like to know more? Check out the show notes for visual material about our governing council decisions and the full transcript of the discussion with journalists during our press conference. The next press conference will be on the 6th of June 2024. In the meantime, stay tuned for new episodes. You've been listening to the ECB podcast with Stefania Secola. If you like what you've heard, please subscribe and leave us a review. In the spirit of Europe, I'd like to end in Maltese today and say nara con. Until next time, thanks for listening.