Draghi dismisses talk of currency war, but watching euro

BRUSSELS Mon Feb 18, 2013 10:45pm IST

European Central Bank President Mario Draghi testifies before the Committee on Economic and Monetary Affairs at the European Parliament in Brussels February 18, 2013. REUTERS/Eric Vidal

European Central Bank President Mario Draghi testifies before the Committee on Economic and Monetary Affairs at the European Parliament in Brussels February 18, 2013.

Credit: Reuters/Eric Vidal

Related Topics

BRUSSELS (Reuters) - European Central Bank President Mario Draghi sought to take the heat out of a debate about currency wars on Monday but said the ECB would still have to assess the economic impact of the euro's strength.

The euro hit a 15-month high against the dollar earlier this month, complicating the ECB's policy-making tasks by weighing on growth and feeding expectations that it may have to take fresh policy action, which some ECB members oppose.

While he expected a very gradual recovery in the euro zone later this year, Draghi said the euro's exchange rate was important for growth and inflation and that it could threaten to pull down inflation too far.

"We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile, because it's always through price stability that we address issues like that," he told European lawmakers in Brussels.

The Group of 20 nations, responding to feverish debate last week about competitive devaluations between the world's economic powers, said on Saturday there would be no currency war - essentially countries competing to weaken their currencies.

Japan's expansive policies, which have driven down the yen, escaped direct criticism in a statement thrashed out in Moscow by G20 policymakers.

While Japan and the United States are pursuing loose monetary policies, the ECB is starting to unwind some of its crisis measures - a contrast has helped drive up the euro.

"Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy," Draghi said.

"In this sense, I find really excessive any language referring to currency wars," he said, adding that the euro's exchange rate was "around its long-term average."

The G20 statement was not disappointing, he said.

"What I did say at the G20 in Moscow, I urged all parties to (exercise) very, very strong verbal discipline," Draghi said.

While G20 finance ministers and central bank governors can promise not to devalue their currencies directly, there can be no guarantees while central banks are pumping money into economies to make them grow again.

The euro's real effective exchange rate is up some 2.2 percent since the start of the year, and has risen by as much as 3 percent.

"SHAM DISCUSSION"

In Vienna, another ECB policymaker, Austria's Ewald Nowotny, said the euro's exchange rate versus the dollar was moving in a range seen previously and that the appreciation against the yen had not been dramatic.

"That means if it stays likes this we are having a sham discussion," Nowotny added, calling talk of a currency war "absolutely unnecessary".

Draghi reiterated the ECB's view that the euro's exchange rate is not a policy target but he added that "it is important for growth and price stability".

The ECB targets inflation of close to, but below, 2 percent.

"Inflation is expected to decline to below 2 percent in the near term," Draghi said.

Turning to the economic outlook for the euro zone, Draghi said weakness in early 2013 should be followed by a very gradual recovery later in the year.

"The risks surrounding the economic outlook for the euro area continue to be on the downside," he said, though he did not single out the currency's strength as a growth risk.

However, Draghi did say the appreciation of the euro was one of the "downside risks" to price stability, though overall these were broadly balanced.

He said repeatedly that the ECB's monetary policy is "accommodative" and stressed that the central bank's top priority is to enhance its transmission across the euro zone.

(Additional reporting by Michael Shields in Vienna, writing by Paul Carrel. Editing by Jeremy Gaunt.)

FILED UNDER:
  • Most Popular
  • Most Shared

Pending Reform

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage