FRANKFURT (MNI) – The following is the first part of a verbatim
text of the introductory statement by European Central Bank President
Jean-Claude Trichet at his press conference following today’s monthly
monetary policy meeting of the ECB’s Governing Council:

Ladies and gentlemen, the Vice-President and I are very pleased to
welcome you to our press conference. We will now report on the outcome
of todays meeting of the Governing Council, which was also attended by
Commissioner Rehn.

Based on its regular economic and monetary analyses, the Governing
Council decided to leave the key ECB interest rates unchanged. The
current rates remain appropriate. Taking into account all the
information and analyses that have become available since our meeting on
4 March 2010, price developments are expected to remain moderate over
the policy-relevant horizon. The latest information has also confirmed
that the economic recovery in the euro area continued in the early
months of 2010. Overall, the Governing Council expects the euro area
economy to expand at a moderate pace in 2010, in an environment of
uncertainty, with the growth pattern possibly being uneven owing to a
number of special factors. The outcome of the monetary analysis confirms
the assessment of low inflationary pressures over the medium term. All
in all, we expect price stability to be maintained over the medium term,
thereby supporting the purchasing power of euro area households.
Inflation expectations remain firmly anchored in line with the Governing
Councils aim of keeping inflation rates below, but close to, 2% over
the medium term. We will continue to monitor very closely all
developments over the period ahead.

Let me now explain our assessment in greater detail, starting with
the economic analysis. Benefiting from the ongoing recovery in the world
economy, the significant macroeconomic stimulus provided and the
measures adopted to restore the functioning of the banking system, the
euro area economy grew by 0.4% in the third quarter of 2009, after a
period of sharp decline, while in the fourth quarter real GDP was flat,
according to Eurostats second release. Available indicators, in
particular further positive information from business surveys, suggest
that the economic recovery in the euro area continued in the early
months of 2010, although it may have been affected by a number of
special factors, including adverse weather conditions. As a consequence,
euro area real GDP growth is likely to have remained uneven around the
turn of the year, making it advisable to look through the quarterly
volatility and to compare growth developments on a half-yearly basis.
Looking ahead, the Governing Council expects real GDP growth to continue
to expand at a moderate pace in 2010, owing to the ongoing process of
balance sheet adjustment in various sectors and the expectation that low
capacity utilisation is likely to dampen investment and that consumption
is being hampered by weak labour market prospects.

The Governing Council continues to view the risks to this outlook
as broadly balanced, in an environment of uncertainty. On the upside,
the global economy and foreign trade may recover more strongly than
projected and confidence may improve more than expected. Furthermore,
there may be greater than anticipated effects stemming from the
extensive macroeconomic stimulus being provided and from other policy
measures taken. On the downside, concerns remain relating to renewed
tensions in some financial market segments, a stronger or more
protracted than expected negative feedback loop between the real economy
and the financial sector, renewed increases in oil and other commodity
prices, and the intensification of protectionist pressures, as well as
the possibility of a disorderly correction of global imbalances.

With regard to price developments, euro area annual HICP inflation
was 1.5% in March 2010, according to Eurostats flash estimate, after
0.9% in February. While no breakdown of overall HICP developments is
available yet, this higher than expected outcome may be related in
particular to the energy component as well as food prices, possibly
partly as a result of weather conditions. Inflation is expected to
remain moderate over the policy-relevant horizon . In line with a slow
recovery in domestic and foreign demand, overall price, cost and wage
developments are expected to stay subdued. Inflation expectations over
the medium to longer term remain firmly anchored in line with the
Governing Councils aim of keeping inflation rates below, but close to,
2% over the medium term.

Risks to this outlook remain broadly balanced. They relate, in
particular, to further developments in economic activity and the
evolution of commodity prices. Furthermore, increases in indirect
taxation and administered prices may be greater than currently expected,
owing to the need for fiscal consolidation in the coming years.

Turning to the monetary analysis, the annual growth rate of M3 was
-0.4% in February. Annual growth in loans to the private sector also
remained weak, at -0.4%, despite a positive flow in the month. Overall,
the latest data continue to support the assessment that the underlying
pace of monetary expansion is moderate and that, in the medium term, the
inflationary pressures associated with monetary developments are low.
The growth of M3 and loans is likely to remain weak also in the coming
months.

The continued steep yield curve fosters the allocation of funds
into longer-term deposits and securities outside M3 and implies that
actual M3 growth is weaker than the underlying pace of monetary
expansion. At the same time, the narrow spreads between the interest
rates paid on different M3 instruments imply low opportunity costs of
holding funds in the most liquid components included in M1, which
continued to grow at a robust annual rate of 10.9% in February. However,
the monthly flows in the components of M3 were generally small in
February, suggesting that the strong impact of the prevailing interest
rate constellation may be progressively waning.

The negative annual growth of bank loans to the private sector
continues to conceal countervailing developments: positive,
strengthening annual growth in loans to households on the one hand, and
negative annual growth in loans to non-financial corporations on the
other hand. At the same time, the flow of loans to firms in February was
positive for the first time since August 2009 and halted the decline in
the annual growth rate. Such positive short-term developments need to be
assessed with caution, owing to the volatility in monthly data. In
addition, it is a normal feature of the business cycle that loans to
non-financial corporations remain weak for some time after economic
activity has picked up.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]