FRANKFURT: European Central Bank President Mario Draghi said on Thursday the strength of the euro could affect the outlook for prices across the euro zone and would have to be taken into account in the bank’s future policy decisions.
The euro has gained 13 percent against the dollar this year, a mixed blessing for the ECB as it reflects a robust economy but caps inflation by making exports less competitive and reducing the cost of imports.
“The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability,” Draghi said in a statement after the bank’s policy meeting.
“The exchange rate is not a policy target but it’s also very important for growth and inflation, and so important that the medium-term outlook for inflation was revised down in the staff’s projections,” Draghi added in a question and answer session.
The ECB lowered some of its inflation projections to reflect the firming euro but lifted some growth forecasts after the euro zone economy registered its best growth run in a decade.
The euro jumped to a nine-day high as Draghi explained the bank’s policy decisions.
He said the strength of the currency was beginning to worry a growing number of members of the ECB’s Governing Council and was likely to be a topic in its future discussions on monetary policy.
“In the last monetary policy meeting there were concerns expressed by a few, and these concerns were now reiterated by most members at this meeting,” Draghi told reporters.
“We will have to take into account this element (the exchange rate) in our information set in our future policy decisions,” he added.
As well as growth and inflation, Draghi said the euro’s strength could have an impact on exports. A stronger euro makes the bloc’s exports more expensive in other countries.
Earlier the ECB reaffirmed its ultra-easy policy stance, even keeping the door open to increasing bond purchases, dashing hopes it would formally signal its intent to claw back stimulus from next year.
The ECB kept rates at their record lows, confirmed that asset buys would continue at €60 billion ($71.76 billion) per month at least until December and said it could even increase or expand the asset purchases if needed, sticking with its long-held super-easy stance.
The statement is likely to rattle some investors who expected the ECB to start laying the groundwork for a cut in monetary stimulus because growth is robust, the threat of deflation long gone and unemployment falling fast — all supporting the case for removing at least some of the bank’s extraordinary measures.
“Clearly we should expect consequences from the appreciation of the exchange rate,” Draghi said.
— Reuters
ECB chief Draghi says euro is important factor in future policy decisions
ECB chief Draghi says euro is important factor in future policy decisions
