Text Of Statement By ECB President Mario Draghi
Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area, in particular resulting from a further intensification of financial market tensions. Such intensification has the potential to affect the balance of risks on the downside.
Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 stood at 3.2 percent in June 2012, slightly higher than the 3.1 percent observed in the previous month and close to the rate observed at the end of the first quarter. Overall, inflows into broad money in the second quarter were weak. Annual growth in M1 increased further to 3.5 percent in June, in line with the increased preference of investors for liquid instruments in an environment of low interest rates and high uncertainty.
The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.3 percent in June (from 0.5 percent in May). As net redemptions of loans to non-financial corporations and households (both adjusted for loan sales and securitisation) were observed in June, the annual growth rates for loans to both non-financial corporations and households (adjusted for loan sales and securitisation) decreased further in June, to -0.3 percent and 1.1 percent respectively. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. A considerable contribution of demand factors to weak MFI loan growth is confirmed by the euro area bank lending survey for the second quarter of 2012. This survey also shows that the net tightening of banks' credit standards at the euro area level was broadly stable in the second quarter of 2012, as compared with the previous quarter, for loans to both enterprises and households.
Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks' balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.