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ECB Discussed Euro Strength, Said to Agree No Need to Overreact

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(C) Reuters. ECB Discussed Euro Strength, Said to Agree No Need to Overreact

(Bloomberg) — European Central Bank President Christine Lagarde said the euro exchange rate must be monitored for its impact on prices, but she didn’t signal any pressing need to adjust policy.

Speaking after the ECB’s Governing Council decided to keep their pandemic bond-buying program unchanged at 1.35 trillion euros ($1.6 trillion) and the deposit rate at -0.5%, Lagarde said the ECB will “careful assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook.”

Follow the ECB decision and press conference on our live blog

Bloomberg earlier reported that the Governing Council agreed to adopt a weaker phrasing about the euro’s appreciation than it did during the last bout of gains.

The single currency jumped to an intraday high, trading up 0.8% at $1.1902 at 2:54 p.m. Frankfurt time. That’s close to the two-year high it reached when it climbed above $1.20 last week.

The euro has soared more than 10% against the dollar since March, helping to depress prices by making imports cheaper. Inflation has turned negative for the first time in four years.

“The strength of the recovery remains surrounded by significant uncertainty as it continues to be highly dependent on the future evolution of the pandemic and the success of containment policies,” Lagarde said. “Clearly to the extent that the appreciation of the euro puts negative pressure on prices we have to monitor carefully such a matter, and this was extensively discussed.”

In a survey before Thursday’s decision, analysts predicted the ECB will increase its emergency bond plan by around 350 billion euros later this year and extend it by six months. The program is currently scheduled to run through June 2021.

Such a decision may need to overcome differences of opinion on the Governing Council. Bundesbank President Jens Weidmann and Estonian central-bank Governor Madis Muller have both said recently that emergency support must be withdrawn once the crisis has passed.

Chief Economist Philip Lane has stressed that the ECB is ready to do more if needed, and that once the economy has overcome the immediate shock of the coronavirus pandemic, and that fueling inflation be the next priority.

(C)2020 Bloomberg L.P.

ECB Discussed Euro Strength, Said to Agree No Need to Overreact

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