Coeure Says Exchange Rate Important for ECB Policy

The European Central Bank may ease its policy further if the euro gains strength, ECB Executive Board member Benoit Coeure said.

While the Frankfurt-based central bank doesn’t have an exchange-rate target, “the level of the euro is important in our monetary policy making,” Coeure said in an interview with Bloomberg TV in Washington today. “It impacts on inflation, and we have an inflation mandate. So the stronger the euro, the more need for monetary accommodation.”

ECB President Mario Draghi said last week that the 24-member Governing Council is unanimous in its willingness to deploy unconventional measures to fight the threat of deflation. Such options include an asset-purchase program, more long-term loans to banks or charging institutions for depositing money with the central bank.

“We have a mandate to bring inflation back to close to two percent,” Coeure said. “We are very aware of our duty under our mandate, and we’ve been clear in our meeting last week that unanimously the Governing Council was ready to consider more measures, including also non-conventional measures to address low inflation if needed.”

The inflation rate in the 18-nation euro area dropped to 0.5 percent in March, the lowest level in more than four years, with Spain becoming the fifth member country after Greece, Cyprus, Portugal and Slovakia to report an annual price decline.

Prolonged Period

The euro traded at $1.3885 at 10:18 a.m. in Washington today, little changed for the day and up almost 6 percent over the past 12 months.

While the low inflation rate is a reason for concern, European policy makers including Eurogroup Chairman Jeroen Dijsselbloem insist that the currency bloc will be able to avoid a Japan-style deflation.

“It’s normal to have low inflation,” said Dijsselbloem, who participated in the Bloomberg TV panel discussion with Coeure, European Stability Mechanism CEO Klaus Regling and European Investment Bank President Werner Hoyer.

“The question is: Will it be for a prolonged period of time, will it be in a number of countries,” Dijsselbloem said. “I don’t see that. I follow what the ECB analysis says, I don’t think that’s going to happen.”

Coeure agreed. “Let me be clear that Europe is not Japan,” he said. “It’s not only about inflation being low or negative, it’s about people postponing their decisions, people postponing their investments, their consumption decisions, and this we don’t see.”

Huge Ambition

Draghi reiterated last week that he expects inflation rates to stay low for a prolonged period. At the same time, he said that the low number in March was a “genuine surprise” and that he expects the rate to pick up in April.

The ECB “sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term,” Draghi said. “In this context, the possible repercussions of both geopolitical risks and exchange-rate developments will be monitored closely.”

While policy makers like chief economist Peter Praet and Vice President Vitor Constancio repeated yesterday the ECB’s willingness to use quantitative easing if necessary, they were unable to offer much on its design.

No decision has been taken, Constancio said after a speech in Washington, adding that the ECB is looking into which assets “would be easier to operate” in case the central bank embarks on a quantitative-easing plan.

“I think the ambition to fine tune inflation or deflation or disinflation is a huge ambition,” Hoyer said during the panel discussion today. “We see that there is need to improve, to even further improve the transmission of monetary policy impulses into the real economy.”

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