http://www.ecb.europa.eu/pub/mb/html/index.en.html

Incoming information continues to indicate that the moderate recovery of the euro area economy is proceeding in line with the
Governing Council's previous assessment. At the same time, recent information remains consistent with the Governing Council's expectation of a prolonged period of low inflation followed by only a gradual upward movement in HICP inflation rates. The signals from the monetary analysis confirm the picture of subdued underlying price pressures in the euro area over the medium term. Inflation expectations for the euro area over the medium to long term remain firmly anchored in line with the Governing Council's aim of maintaining inflation rates below, but close to, 2%.

Looking ahead, the Governing Council will monitor economic developments and money markets very closely. It will maintain a high degree of monetary accommodation and act swiftly, if required, with further monetary policy easing. The Governing Council firmly reiterates that it
continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of
unutilised capacity, and subdued money and credit creation. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation. Further information and analysis concerning the outlook for inflation and the availability of bank loans to the private sector will be
available in early June.

Regarding the economic analysis, real GDP in the euro area rose by 0.2%, quarter on quarter, in the last quarter of 2013, thereby increasing for three consecutive quarters. Recent data and survey indicators confirm that the ongoing moderate recovery continued in the first quarter of 2014 and at the beginning of the second quarter. Looking ahead, domestic demand should continue to be supported by a number of factors, including the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, the progress made in fiscal consolidation and structural reforms, and developments in energy prices. At the same time, although labour markets have stabilised and shown the first signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative
in March and the necessary balance sheet adjustments in the public and private sectors continue to
weigh on the pace of the economic recovery.

The risks surrounding the economic outlook for the euro area continue to be on the downside. Geopolitical risks, as well as developments in global financial markets and emerging market economies, may have the potential to affect economic conditions negatively. Other downside
risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.

According to Eurostat's flash estimate, euro area annual HICP inflation was 0.7% in April 2014, up from 0.5% in March. As expected, given the timing of Easter, the increase was mainly due to a rise in services prices. On the basis of current information, annual HICP inflation is expected to remain around present low levels over the coming months, before only gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016. New macroeconomic projections by Eurosystem
staff will become available in early June. Medium to long-term inflation expectations remain firmly anchored in line with price stability.

The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.


José Luis Martínez Campuzano
Estratega de Citi en España