ECB says will monitor impact of euro strength

Thu Feb 7, 2013 11:30am EST
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By Eva Kuehnen

FRANKFURT (Reuters) - The European Central Bank will monitor the economic impact of a strengthening euro, ECB President Mario Draghi said on Thursday, feeding expectations the climbing currency could open the door to an interest rate cut.

After the ECB left its main interest rate at 0.75 percent on Thursday, Draghi said the exchange rate was near to its long-term average but went further than many analysts had expected.

"The appreciation is, in a sense, a sign of return of confidence in the euro," Draghi told a news conference.

"The exchange rate is not a policy target, but it is important for growth and price stability and we certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned."

The euro hit a 15-month peak of $1.3711 on February 1. It traded below that level on Thursday and fell to a one-week low against the dollar and sank against the yen after Draghi's comments.

French President Francois Hollande said on Tuesday the euro zone must develop an exchange rate policy to protect the currency from "irrational movements". Germany has been cooler to any thoughts of exchange rate action.

By linking the euro's exchange rate to growth and price stability, Draghi achieved a deft piece of verbal intervention, analysts said.

"This hints that euro strength -- if sustained -- could eventually trigger a rate cut," said Nick Kounis at ABN Amro.   Continued...

European Central Bank (ECB) President Mario Draghi arrives for the monthly ECB news conference in Frankfurt February 7, 2013. REUTERS/Lisi Niesner