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Euro exchange rate could have impact on inflation

By Ian Wishart  -  18.02.2013 / 18:59 CET
Exchange rate “not a policy target” but is important for price stability and growth, ECB president Mario Draghi tells MEPs.

Mario Draghi, the president of the European Central Bank, has played down talk of global currency war but warned that a stronger euro could have an impact on inflation.

Draghi, who was speaking to the European Parliament's economic and monetary affairs committee, said that the euro's exchange rate was “not a policy target” but acknowledged that it did contribute to price stability and growth.

The Italian also warned about continuing weakness in the eurozone economy in 2013 but said that a gradual recovery would set in towards the end of the year. Draghi said he found any reference to currency wars “really excessive” and said that he was satisfied with the final statement of the meeting of G20 group of finance ministers in Moscow on Saturday, which demanded that governments do not try to influence exchange rates.

“I urged all parties to [exercise] very, very strong verbal discipline,” Draghi said today. “The less we talk about it, the better it is.”

“The [euro] exchange rate is not a policy target but is important for growth and price stability,” Draghi added. “Looking at the nominal and real exchange rate of the euro, we see that by and large, it is around its long-term average.”

France has called for the eurozone to have a more aggressive exchange rate policy, saying that it feared that growth and recovery would be hampered by a strong euro. Draghi said that inflation was forecast to drop below 2% soon. Its own target is set at close to but below 2%.

“We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile,” Draghi told MEPs. “It's always through price stability that we address issues like that.”

Draghi warned that “considerable further effort” was needed for the eurozone to recover economically and said that “economic weakness” could be expected in the first half of the year. “Strengthening global demand, our accommodative monetary policy stance and the improvement in financial market confidence across euro area countries should all work their way through to spending and investment decisions and support the recovery,” he said.

© 2014 European Voice. All rights reserved.

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