Draghi Says Exchange Rate Is Important for Growth, InflationJeff Black and Jana Randow
European Central Bank President Mario Draghi said while the ECB doesn’t target the exchange rate, it plays an important role in assessing the economic outlook.
The ECB’s mandate is to pursue price stability “in both directions,” Draghi said at a press conference today in Moscow, where he’s attending a Group of 20 meeting. “The exchange rate is not a policy target but important for growth and price stability,” he said, adding the central bank will publish new projections next month.
Exchange rates top the agenda for G-20 finance ministers and central bankers as they begin two days of talks amid concern countries may devalue their currencies to stimulate growth. Looser monetary policy in the U.S. and Japan combined with mounting optimism in Europe drove the euro to 14-month and three-year highs against the dollar and the yen earlier this month.
Draghi declined to comment on the yen’s depreciation, saying “chatter” about exchange rates is “either inappropriate or fruitless and in all cases self-defeating.” Asked if policy makers are considering a rate cut, he said the ECB “never pre-commits” on monetary policy.
ECB council member Jens Weidmann said in an interview that the appreciating euro alone won’t trigger lower borrowing costs and the exchange rate’s gains are justified by the economic outlook.
While fourth-quarter gross domestic data for the euro area published yesterday was “more negative than expected,” Draghi said there are “increasing signs of stabilization at low levels.”
“You have a whole range of indicators that show things are normalizing,” he said. “Together with the accommodative monetary policy stance, this has to find its way into the real economy to create jobs and growth.”
The recession in the euro area deepened in the final quarter of 2012, with GDP dropping 0.6 percent. The ECB forecasts a gradual recovery in the second half of this year.
The central bank has kept its benchmark interest rate at a record low of 0.75 percent since July and flooded banks with more than 1 trillion euros of cheap three-year loans. Banks started to repay the funds last month.
While repayments “are a sign confidence is returning in the euro area,” they “should not be considered as an exit from accommodative policy at all,” Draghi said.