FRANKFURT, Nov 14 (Reuters) - The European Central Bank’s 2.6 trillion euro ($2.9 trillion)bond purchase scheme may have weakened the euro by 12 percent against the dollar, research published by the ECB argued on Wednesday, calling the impact of such buying “large and persistent”.
Facing criticism from the U.S. administration that Europe and in particular Germany were gaining an unfair trade advantage through a “grossly undervalued” currency, the ECB has long maintained that its goal was not to weaken the euro and that this was a mere side effect.
“Our estimates imply that the ECB’s asset purchase programme, which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016, depreciated the euro vis-a-vis the U.S. dollar by 12 percent,” the study said.
“Our findings suggest that quantitative easing measures have large and persistent effects on the exchange rate,” said the paper, which does not necessarily represent the ECB’s opinion.
Launched in early 2015, the bond buys reduced borrowing costs to record lows, revived growth and rekindled inflation, which is now trending around the bank’s target. The buys are due to end next month.
The ECB has many times rejected the accusation of currency manipulation and said that the exchange rate was one of many ways through which its ultra easy policy worked and that lower interest rates throughout the economy were the key.
The euro is now 8 percent stronger than at the end of 2016 but remains far below levels before the bond purchases began and has been trending down all year as the ECB has signalled that monetary policy will remain ultra-easy for years to come. ($1 = 0.8853 euros) (Reporting by Balazs Koranyi; Editing by Hugh Lawson)