FRANKFURT, March 6 (Reuters) – The European Central Bank cut interest rates for the sixth time in nine months on Thursday, sticking to its easing plan in the face of economic upheaval from an unfolding trade war and new plans to boost Europe’s military spending.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
ON TARIFFS
“My personal view is that you have to negotiate from a position of strength.
“So one thing leads to the other, and that’s the hope that I can formulate, because we know that tariffs, and particularly if there is retaliation, are not good at all and are net negative on pretty much all accounts, but that’s my personal view.
“Although I think around the table of the Governing Council we all agreed that it was net negative if it/when it happens and it’s even negative before it happens because of the uncertainty that is generated.
“The undermined confidence that results from just the threat of those tariff increases and potential retaliations are putting a break on investment, on consumption decisions, on employment, hiring, and all the rest of it.”
MORE ON EU AND GERMAN SPENDING AND BORROWING PLANS
“If all that was to work, it would certainly have a fiscal impact, which itself would have an impact on demand, so we will have to take that into account and factor that in. But I don’t see that as related to our monetary policy.”
ON WHETHER TO SEIZE FROZEN RUSSIAN ASSETS
“This is not for the European Central Bank to debate, but I would certainly submit that the international law basis on which any decision is made will matter as far as other investors are concerned. It is, I’m sure, an element that will be taken into account by those whose job it is to make those ultimate decisions.”
THURSDAY’S RATE CUT
“It (the decision) was made as a result of substantive discussion all around the table on the state of the economy, on our projections, on the risks that we are facing, and the decision was a consensus and no-one opposed that decision.
“No-one opposed the decision, one governor, specifically Governor (Robert) Holzmann, for whom I have great respect, abstained. Okay, there was no opposition. There was one abstention.”
NOT PRE-COMMITTING
“If the data indicates to us that in order to reach destination, the appropriate monetary policy should be to cut, we shall do so. If, on the other hand, the data indicates that is not the case, then we shall not cut and we will pause. So that’s really where we are – not pre-committing, being data-dependent as ever, and deciding on a meeting-by-meeting basis.”
DRAMATIC CHANGES
“From one day to the other, the situation changes dramatically, and our projection, the measure of underlying inflation, the price of energy, you know, you just name it, risks are all over the place.”
HUGE UNCERTAINTY
“We have huge uncertainty.
“Some people have used the adjective ‘phenomenal’ uncertainty and we debated as to whether it was high and rising, but suffice to say that it is all over – so we have risks all over, uncertainty all over.”
MORE ON GERMAN/EU PROPOSALS FOR DEFENCE AND INFRASTRUCTURE INVESTMENT
“One thing that around the table of the Governing Council was clear is that on both accounts, that would be supportive to European growth at large and would be a boost to the European economy.”
ON GERMAN/EU SPENDING PLANS
“This is work in progress. And we have to be attentive, vigilant. We have to understand how this is going to work.
What the timing will be, what the financing will be so that we can then draw the conclusions and appreciate how much it will contribute to growth and what impact it would have eventually on inflation.
“That part of the work we have not yet, of course, determined the conclusion.”
MEANINGFULLY LESS RESTRICTIVE
“We are now moving – by having our monetary policy becoming meaningfully less restrictive – to a more evolutionary approach.
“So in other words, we take account of the journey that we have travelled 150 basis points since we started cutting and we acknowledge the fact that as a result, (policy) is becoming meaningfully less restrictive.”
SPENDING INFLATION RISK
“A boost in defence and infrastructure spending could also raise inflation through its effect on aggregate demand.”
“DOWNSIDE INFLATION RISK
But inflation might surprise on the downside if monetary policy dampens demand, by more than expected.”
DOWNSIDE RISKS TO GROWTH
“The risks to economic growth remain tilted to the downside, an escalation in trade tensions would lower euro area growth by dampening exports and weakening the global economy.”
DEFENCE BOOST
“An increase in defence and infrastructure spending could also add to growth.”
INCREASED UNCERTAINTY
“Uncertainty has increased and is likely to weigh on investment and exports by more than previously expected. But growth should be supported by higher incomes and lower borrowing costs. According to the staff projections, exports should also be supported by rising global demand so long as trade tensions do not escalate further.”
CONSUMPTION PICK-UP
“Rising household incomes and the robust labour market are supporting a gradual pick up in consumption, although consumer confidence is still fragile and saving rates are still high.”
(Reporting by Reuters Global News Desk)
