—President Lagarde Downplayed Forex Moves Following September Rate-setting Meeting
By Laurie Laird
LONDON (MaceNews) – Members of the European Central Bank’s rate-setting body spoke extensively about euro appreciation at the September governing council gathering, belying the indifference of ECB top guard immediately following the event.
Minutes of that meeting released Thursday contain numerous references to the strength of the single currency and the risk that euro appreciation could further dampen inflation, which has turned negative in recent months.
“Given the openness of the euro area economy, members considered that a further appreciation of the exchange rate constituted a risk to both growth and inflation,” according to the minutes.
The ECB has largely failed to meet its inflation target of close to but below 2% over the past decade, with consumer prices actually falling in August and September. The ECB expects inflation to recover to just 1.3% by the end of 2022.
ECB President Christine Lagarde downplayed euro appreciation immediately following the September rate-setting meeting, saying only that the the council must “carefully monitor” the forex markets, but stressing that the ECB does not target exchange rates.
The euro has appreciated by nearly 5% against the dollar since the start of the year, although the single currency was little changed at $1.1760 after the release of the minutes, down from $1.19 at the time of the last governing council meeting.
Lagarde’s apparent nonchalance contrasts greatly with the Bank’s stance in early 2018, the last significant spike in the value of the euro. But Thursday’s minutes did refer to that episode.
“While it was noted that the nominal effective exchange rate of the euro was above the level recorded in 2018, it was suggested that it was the pace of the euro’s appreciation, rather than the level of the exchange rate, that could become a concern.”
Governing council members did agree that the eurozone economy has recovered more quickly than expected, noting “indications that, in the absence of lockdowns, activity – and especially domestic consumption – would improve markedly in the third quarter. However, the meeting took place ahead of widespread local lockdowns in various EU states.
—
Contact this reporter: laurie@macenews.com.
Content may appear first or exclusively on the Mace News premium service. For real-time email delivery contact tony@macenews.com. Twitter headlines @macenewsmacro.