The European Central Bank will roll out monetary easing policies if the euro continues strengthening, said President Mario Draghi over the weekend.
In what is a sign that the ECB will begin asset-buying program in the coming weeks, Draghi insisted that the euro’s exchange rate is very crucial tool for influencing policy.
“The strengthening of the exchange rate would require further monetary policy accommodation. If you want policy to remain as accommodative as now, a further strengthening of the exchange rate would require further stimulus,” Draghi told a press briefing on Saturday
The persistently low inflation in the euro zone took center stage on Saturday in a meeting of central bankers and finance ministers, with the IMF urging the ECB to intervene.
“The Fund is recommending more monetary easing to the ECB, and rightly so,” said Guido Mantega, who is Brazil’s finance minister, reported Reuters.
Markets are keenly monitoring events across the euro zone. Last week, Draghi said that the ECB had reached a conclusion that asset buys or quantitative easing are now necessary. The ECB also rolled out more printed money into circulation as it tries to combat the deflation and the bloc’s weak economy. The ECB plans to ensure the inflation hovers just around less than 2 percent.
The euro has gained nearly 5.5 percent versus the greenback over the past year and almost 10 percent versus the yen. This saw it recently touch the highest level against the dollar since 2011. The currently closed at $1.39 last week, which is still considerably lower than the all-time high of $1.60 reached in July 2008.
The euro’s strong performance has puzzled the market, given the EU’s weak growth prospects, low interest rates and almost-zero inflation. Actually, most analysts predicted the U.S. stimulus tapering and the improving economy to send the dollar higher against the euro in 2014. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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