Mario Draghi, the President of the European Central Bank, stated on Thursday that the strength of the euro could have an effect on the outlook for prices across the euro zone and would have to be considered in the future policy decisions of the bank.
This year, the euro has gained 13 percent against the dollar, a mixed blessing for the European Central Banks as it shows a strong economy but caps inflation by causing exports to be less competitive and decreasing 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,” said Draghi 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,” added Draghi in a question and answer session.
Some of the ECB’s inflation projections have been lowered by the bank to reflect the firming euro but raised some growth forecasts after the euro zone economy recorded its best growth run in 10 years.
As Draghi explained the policy decisions of the bank, the euro bounced to a 9-day high.
He noted that the currency’s strength was starting to concern an increasing number of members of the ECB’s Governing Council and was likely to be a topic in its discussions on monetary policy in the future.
“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,” the ECB President informed the reporters.
“We will have to take into account this element (the exchange rate) in our information set in our future policy decisions,” continued Draghi.
Similar to inflation and growth, Draghi remarked that the strength of the euro could have an impact on exports. A strong euro results to more expensive exports of the bloc to other countries.
“Clearly we should expect consequences from the appreciation of the exchange rate,” said Draghi.