For sound reasons the Governing Council decided not to adopt this approach. The publication of individual positions could easily lead to national influence being exerted over the individual Council members. The members of the Governing Council must not, however, be seen as national representatives. They decide together on the monetary policy for the euro area as a whole. The Governing Council has committed itself to go beyond the reporting and explanatory requirements laid down in the Treaty, which are among the most comprehensive requirements by international standards.
On the basis of our strategy, after every first meeting in the month
I deliver to the press a detailed explanation of our assessment of the
overall economic situation and, in particular, the outlook for price
stability. The content of this so-called "introductory statement" is very
close to what other central banks refer to as minutes. In this way, the
public receives comprehensive information immediately following the
meetings of the Governing Council. In addition, each month we shall publish
a detailed report on the economic situation and monetary policy throughout
the euro area in our Bulletin. Such rapid information on the results of the
meetings of the Governing Council and the current economic analysis of the
ECB without doubt demonstrates a high degree of openness and transparency.
The most recent monetary policy decisions and operations
Co-operation between the European central banks was always very close. In the last few months of 1998 the countries participating in the third stage of Monetary Union co-operated more and more closely. The co- ordinated reduction in leading rates at the beginning of December 1998 clearly showed that the currency union had begun de facto before the start of Stage Three. This co-ordinated measure contributed substantially - as we now know - to the stabilisation of market expectations.
For more than five weeks the ECB has been conducting monetary policy operations, mainly in the form of reverse open market operations. The main operation will be carried out at a weekly frequency with a maturity of two weeks. So far, five such operations have been conducted successfully, at a fixed interest rate of 3%.
Besides the reverse transactions which constitute the main instrument for liquidity control and targeting interest rates, the Eurosystem offers two "standing" facilities: the marginal lending facility and the deposit facility. These can be accessed by credit institutions via the national central banks. The marginal lending facility is primarily a safety valve for short-term liquidity shortages in the banking system and thereby limits upward movements in money market rates. To some extent, its counterpart is the short-term deposit facility, which is used to absorb short-term liquidity surpluses. This forms the lower limit for money market rates. For the start of Monetary Union the interest rate on the deposit facility was set at 2% and the rate on the marginal lending facility was set at 4.5%.
As a transitional measure, the Governing Council decided to establish
a narrow corridor of 2.75-3.25% between the rates on the marginal lending
facility and the deposit facility from 4 to 21 January 1999. The intention
was to facilitate the necessary adjustment to the new institutional
environment brought about by the transition to Stage Three. As already
announced, on 21 January 1999 it was decided to return to the rates on the
two "standing" facilities that were set for the start of the single
monetary policy. Since 22 January 1999, therefore, the rate on the deposit
facility has been 2% and the rate on the marginal lending facility has been
4.5%.
A critical factor in this decision was the behaviour of the money
market for the euro area as a whole since the beginning of the year. The
Governing Council established that over time there had been a marked
reduction in the difficulties experienced by some market participants with
the introduction of the integrated money market and, in particular, with
cross-border liquidity flows. All in all, the integration of the money
market in the euro area reached a satisfactory stage only three weeks after
its implementation. In analysing the money market it should be noted that,
inter alia, there can be a marked difference between ECB interest rates and
short-term market rates. On the one hand, market rates may include credit
risk premia, and on the other, expectations may lead to differences between
the two rates.
At its meeting last Thursday the Governing Council confirmed its earlier assessment of the outlook for price stability. Therefore it was decided to leave the conditions for the next main refinancing operations, on 10 and 17 February 1999, unchanged. They will be carried out as volume tenders at a fixed rate of 3%, the same conditions as the last such monetary policy operations.
In addition, in recent weeks the first longer-term open market
operations were also conducted, in the form of reverse transactions. These
were carried out on 14 January 1999 in three parallel tender procedures
with maturities of one, two and three months. The fixed rate tender
procedure was used. By contrast with the regular main refinancing
operations, the Eurosystem does not use these longer-term operations to
send signals to the market and therefore usually acts as a price-taker. The
ECB thus gives advance indication of the planned allocation. The interest
rates which arise from these monetary policy operations should therefore be
seen as indicators of prevailing market conditions.
Regular assessment of the monetary, financial and economic situation
To conclude, I should like briefly to report on the Governing
Council’s current assessment of the monetary, financial and economic
situation. On the basis of these assessments the Governing Council decided
last Tuesday to leave interest rates unchanged.
Taking into account the latest monetary data for December 1998, the three-month moving average of the 12-month growth rate of the monetary aggregate M3 (for the period from October to December 1998) remained more or less stable at 4.7%. This value is very close to the reference value set by the Governing Council. According to our analysis, the evolution of the money supply shows no risks to price stability. Credit to the private sector also grew strongly in December last year. Although at present we do not perceive any inflationary signals, further developments will be very carefully monitored.
With regard to the broadly based assessment of the outlook for price
developments and the risks to price stability in the euro area, monetary
and financial developments can be seen to indicate a favourable assessment
of the latest monetary policy decisions of the Eurosystem. They indicate
that market participants expect a continuation of the environment of price
stability. Long-term rates fell to new historical lows at the beginning of
1999 and there was an overall downward shift in the yield curve. Therefore,
financing conditions for investment are currently exceptionally favourable.
At present the growth prospects for the euro area are, however, still
marked by the uncertainties relating to the development of the world
economy in 1999. These uncertainties have had a negative impact on
indicators of the economic climate in the euro area. There are widespread
expectations of an economic slowdown in the near future. This deterioration
in the external economic environment can be linked, above all, to the
financial crises in Asia, Russia and Latin America. However, there is a
mixed picture. While the growth rate for industrial production fell up to
November 1998, retail sales figures and consumer confidence have recently
shown positive trends. Furthermore, growth in real gross domestic product
in the euro area was relatively robust in the third quarter of 1998. In the
United States real growth in the fourth quarter actually turned out higher
than expected. Measured against the Harmonised Index of Consumer Prices,
the HICP, consumer prices in the euro area rose by 0.8% in December 1998.
This is a tenth of a percentage point lower than in November. This
development is in line with earlier trends. It can be linked, in
particular, to a further decline in energy prices and a weakening in price
increases in industrial goods.
All in all, the above-mentioned economic development and the available forecasts for 1999 do not indicate any noticeable upward or downward pressure on prices. Potential upward risks could arise from a change in the external global economic situation and any associated effects on the euro area, via import and producer prices. These developments must be carefully monitored. There is concern that inflationary pressure might develop in the event of a strong increase in wage prices and an easing of fiscal policy. Developments in the exchange rate will also be closely monitored in view of their significance for price developments.
Finally, let me emphasise that the current level of real interest
rates is exceptionally low. If real interest rates are taken simply as the
difference between nominal rates and the current increase in consumer
prices (HICP), short-term real interest rates in January 1999 stood at
2.3%, i.e. around 80 basis points lower than one year ago. Long-term real
rates have fallen even more, by 110 basis points, and stood at 3% in
January. These levels are very low, both compared with other countries and
with historical data. In line with the safe-guarding of price stability,
the current monetary and financial conditions thus clearly support future
economic growth. Monetary policy can do no more than this without
jeopardising the great overall economic advantages of price stability and
its own credibility.
Real structural reforms which increase the flexibility of the labour markets, as well as a continuation of the moderate increase in wage prices, would not only ease the burden on monetary policy but would also support employment growth. This will be all the more true if the deterioration in the economic situation this year is worse than expected owing to the negative aspects of the external economic environment.
The statistical requirements of the ESCB
Speech delivered by Eugenio Domingo Solans,
Member of the Executive Board of the European Central Bank on the occasion of a visit to the Banque Centrale du Luxembourg
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