The Euro exchange rate is not an objective of monetary policy of the European Central Bank (ECB), which will take, however, into account the risk it poses to inflation, ECB President Mario Draghi said today, before the Commission for Economic and Monetary Affairs of the European Parliament, without saying whether the institution he leads will intervene in some way to support economic growth.
“The exchange rate is not a policy target but it is important for growth and price stability,” but it is important for economic growth and inflation. “Inflation is expected to decline to below 2% in the near term,” said Draghi, quoted by the economic newspaper Les Echos. Immediately after this statement, the euro was slightly lower against the U.S. dollar.
The euro reached the highest level in 14 months against the dollar, a trend that has complicated the task of the ECB in terms of supporting economic growth and fueled speculation that the ECB will be forced to take further measures to support the economy.
“We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile,” added Draghi. On February 7, when Draghi said that the euro appreciation is clearly a risk to inflation, fueling speculation that the ECB could consider cutting interest rates, the euro lost 2 cents to the dollar. Today, after the declaration of the European Parliament, the single currency depreciated to 1.3350 EUR/USD from 1.2259 EUR/USD.
Last week, finance ministers of the G20 countries have criticized governments who want to influence exchange rates in an attempt to calm the speculations about the onset of a currency war. They openly criticized Japan for yen depreciation. According to the final communiqué of the G20 meeting ended Saturday in Moscow, finance ministers and central bankers have decided not to use the exchange rates for competitive purposes.
Leaders of major economies want to allay fears that some countries try to devalue currencies to support economic growth through exports. The risk is entering a spiral of devaluations and protectionism, if the countries will react to protect their economies by devaluing their currencies.
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