WASHINGTON: A further strengthening of the euro would require more loosening in the European Central Bank’s monetary policy to keep the current amount of monetary stimulus in place, ECB President Mario Draghi said yesterday.
Draghi made the strong comments as the issue of weak eurozone inflation took centrestage at a meeting of the International Monetary Fund, whose steering committee urged the ECB to consider acting if low inflation becomes persistent.
Draghi said that euro appreciation over the last year was an important factor in bringing inflation in the currency bloc down to its current low levels, accounting for as much as a half percentage point decline in the annual rate, which stood at only 0.5 percent year-on-year in March. The ECB aims to keep inflation close to 2 percent.
“I have always said that the exchange rate is not a policy target, but it is important for price stability and growth. And now, what has happened over the last few months is that is has become more and more important for price stability,” Draghi said at a news conference on the sidelines of the IMF and World Bank’s spring meetings.
“So the strengthening of the exchange rate would require further monetary policy accommodation. If you want policy to remain as accommodative as now, a further strengthening of the exchange rate would require further stimulus,” he said.
Over the past 12 months, the euro has strengthened by nearly 5.5 percent against the dollar
and by nearly 10 percent against the yen. Reuters
