Governor’s statement following the ECB’s monetary policy meeting
The outlook for economic growth is improving in the euro area, as businesses and households increasingly adapt their behaviour. The Governing Council of the ECB’s assessment is that the latest figures support our forecasts, which nevertheless go hand-in-hand with great uncertainty, given the persistently bad epidemiological picture. The situation on the financial markets has also stabilised, with significant support from the accommodative monetary policy. In this situation the Governing Council decided yesterday to reconfirm the measures put in place to date, thereby continuing to ensure favourable financing conditions for the banking sector, the non-banking sector and the governments of the Eurosystem.
In a situation of huge uncertainty surrounding the evolution of the epidemic, the outlook is improving slightly for global economic growth and economic growth in the euro area. The recovery in the euro area has been dragging slightly in the early part of the year, primarily on account of the slower rollout of the vaccine compared with certain other global economies.
The macroeconomic projections drawn up at the ECB in March thus envisage stagnation in the first half of the year, followed by a pick-up in the recovery in the second half of the year.
The latest figures confirm our forecasts: the PMI improved slightly in March. Manufacturing expectations reached a record high, while services expectations indicate no change in activity following months of contraction. These slightly more optimistic figures suggest that the number of sectors that are successfully adapting to the containment measures is increasing. Similarly in Slovenia all sectors not being directly impacted by the containment measures are recovering.
An important element of the economic recovery is the availability of vaccines in euro area countries, which has increased significantly in recent weeks. Vaccination rates can be expected to pick up a little pace in the coming months.
Supported by the ECB’s highly accommodative monetary policy, which was further strengthened in March with an increase in purchases under the PEPP for the second quarter, following their earlier rises nominal yields on government bonds have stabilised at levels that continue to ensure favourable financing conditions. Slovenia’s sovereign borrowing costs on the capital markets remain at a very low level: the yield on 10-year government bonds is now around zero. Private-sector borrowing costs also remain at very low levels, while share prices are rising, and certain European share indices have now regained their pre-pandemic marks. The high level of participation of euro area banks in March’s TLTRO-III is testimony to the effectiveness of the measure, which is supporting the bank transmission channel for monetary policy and is consequently allowing banks to lend to businesses and households at favourable terms.
Having maintained high liquidity during the crisis, and having been aided by other central bank measures of monetary policy and regulatory policy, and indirectly by extensive fiscal policy measures, Slovenian banks have taken relatively little part in refinancing operations via the Eurosystem (in terms of this indicator, Slovenia belongs to the group of countries with the lowest drawdown).
In these circumstances the Governing Council has decided to reconfirm the accommodative monetary policy measures put in place to date. The asset purchase programmes and refinancing operations will continue to provide favourable funding for the banks, who are successfully translating this into lending conditions for businesses and households. In the low interest rate environment this is also providing sufficient room for fiscal policy, which is the key to successfully emerging from the crisis caused by the pandemic.