ECB concerned over euro’s strength

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FRANKFURT AM MAIN: European Central Bank governors expressed concern over the strength of the euro at their last meeting in July, minutes showed on Thursday, complicating their attempts to ease away from stimulus without undermining the recovery.

While the recent appreciation of the euro was partly evidence of the robust health of the eurozone economy, “concerns were expressed about the risk of the exchange rate overshooting in the future”, the ECB minutes stated.

The euro, which has risen some five percent against the dollar in recent months, briefly fell to just under $1.17 after the minutes were published.

ECB watchers are closely monitoring the Frankfurt-based institution for any sign that it is preparing to roll back its crisis-fighting easy money policies as the euro area recovery picks up speed.


The bank has set interest rates at record lows, offered cheap loans to banks and embarked on a 2.3-trillion-euro bond buying scheme in a bid to bolster growth and push inflation towards its target of just under 2.0 percent.

It is currently scheduled to buy 60 billion euros in bonds a month until the end of the year, and markets expect the bank to begin gradually winding down the scheme, known as quantitative easing (QE), next year.

ECB chief Mario Draghi announced no policy changes at the last meeting in July, and urged markets to be “patient” in the face of stubbornly low inflation despite an uptick in economic growth.

A rising euro risks complicating the bank’s delicate balancing act.

A stronger currency makes for cheaper imports, which can lead to lower prices and drive down inflation. It also makes exports more expensive, hurting the eurozone’s competitiveness.

“With the ECB becoming worried about a high exchange rate, one has to wonder whether they will now put their QE tapering plans on hold until central banks of the eurozone’s largest trading partners start tightening their policies,” said Fawad Razaqzada at Forex.com.

Attention now turns to Draghi’s August 25 speech at Jackson Hole, the year’s top gathering of central bankers in the United States.

But analysts weren’t holding their breath for any major policy shifts soon.

“Today’s minutes fit into the picture of an ECB which wants to steer and moderate the process towards tapering extremely cautiously,” said ING Diba bank analyst Carsten Brzeski.

Draghi said at the July meeting that the ECB would begin discussing the future of its bond-buying programme in the autumn.

The governing council will next meet on September 7.

AFP

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