ECB frets over stronger euro as stimulus exit nears

FRANKFURT AM MAIN: European Central Bank governors expressed concern over the strength of the euro at their last meeting in July, minutes showed, complicating their attempts to ease away from stimulus without undermining the recovery.

While the recent appreciation of the euro was partly evidence of the robust health of the eurozone economy, “concerns were expressed about the risk of the exchange rate overshooting in the future”, the ECB minutes stated.

The euro, which has risen some five per cent against the dollar in recent months, briefly fell to just under US$1.17 after the minutes were published.

ECB watchers are closely monitoring the Frankfurt-based institution for any sign that it is preparing to roll back its crisisfighting easy money policies as the euro area recovery picks up speed.

The bank has set interest rates at record lows, offered cheap loans to banks and embarked on a 2.3trillion-euro bond buying scheme in a bid to bolster growth and push inflation towards its target of just under 2.0 per cent.

It is currently scheduled to buy 60 billion euros in bonds a month until the end of the year, and markets expect the bank to begin gradually winding down the scheme, known as quantitative easing (QE), next year.

ECB chief Mario Draghi announced no policy changes at the last meeting in July, and urged markets to be ‘patient’ in the face of stubbornly low inflation despite an uptick in economic growth.

A rising euro risks complicating the bank’s delicate balancing act.

A stronger currency makes for cheaper imports, which can lead to lower prices and drive down inflation.

It also makes exports more expensive, hurting the eurozone’s competitiveness. — AFP