European Central Bank Governing Council member Christian Noyer said a strengthening euro creates unwarranted pressure on the euro-area economy.
“It’s a very important input in the economic development and inflation development,” Noyer said in a Bloomberg Television interview with Manus Cranny in Paris. “When the euro tends to strengthen, it creates additional downward pressure on the economy and inflation, which in both cases isn’t warranted. So we’re not happy at the moment.”
The euro is trading near the highest level since Mario Draghi became ECB president in 2011, when he started a series of rate cuts and unconventional policies to end a debt crisis and save the single currency. The dilemma now is that the euro’s strength, a sign that the worst of the crisis has passed, may yet derail the recovery by curbing the price of imported goods and undermining the competitiveness of producers in the bloc.
The euro fell after Noyer’s comments and traded at $1.3881 at 3:15 p.m. Frankfurt time, down from $1.3898. It climbed as high as $1.3915 on March 7, the strongest since October 2011.
While the ECB doesn’t have a mandate to target the exchange rate, Draghi said last week that a stronger euro “might influence our price-stability objective.” The Frankfurt-based central bank kept its benchmark interest rate unchanged at a record low of 0.25 percent on March 6 and Noyer said today that further monetary easing is “not too controversial” to do.
Even so, Noyer added that the region’s current outlook is in line with ECB’s baseline scenario of a gradual economic recovery.
“We thought that the conditions were exactly as we wanted them to be,” he said. “The extreme degree of accommodation we have at the current juncture” is appropriate.
The euro area’s revival has also been reflected in falling bond yields. The premium that investors demanded to hold Spanish 10-year bonds over German debt was at 1.68 percentage points today, compared with a euro-era high of more than 6 percentage points in July 2012. The spread between Italian and German 10-year debt has dropped to 1.76 percentage points from more than 5 percentage points over the same period.
Noyer said today that policy makers are watching the region’s data carefully and have a range of instruments to use if necessary. Euro-area inflation was 0.8 percent last month, less than half the ECB’s goal of just under 2 percent, and unemployment in the 18-nation economy is near a record high at 12 percent.
“We stand ready to act,” he said. “I, personally, am very open to all kinds of tools.”
Noyer said after the interview that he would be in favor of suspending the sterilization of ECB bond purchases under the central bank’s now-defunct Securities Market Program.
“The suspension of sterilization can help ensure the money-market curve remains at low levels,” Noyer said. “This is one of the tools we might like to use if needed.”