Draghi dismisses talk of currency war, but watching euro

Mon Feb 18, 2013 12:11pm EST
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By Robin Emmott

BRUSSELS (Reuters) - European Central Bank President Mario Draghi sought to take the heat out of a debate about currency wars on Monday but said the ECB would still have to assess the economic impact of the euro's strength.

The euro hit a 15-month high against the dollar earlier this month, complicating the ECB's policy-making tasks by weighing on growth and feeding expectations that it may have to take fresh policy action, which some ECB members oppose.

While he expected a very gradual recovery in the euro zone later this year, Draghi said the euro's exchange rate was important for growth and inflation and that it could threaten to pull down inflation too far.

"We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile, because it's always through price stability that we address issues like that," he told European lawmakers in Brussels.

The Group of 20 nations, responding to feverish debate last week about competitive devaluations between the world's economic powers, said on Saturday there would be no currency war - essentially countries competing to weaken their currencies.

Japan's expansive policies, which have driven down the yen, escaped direct criticism in a statement thrashed out in Moscow by G20 policymakers.

While Japan and the United States are pursuing loose monetary policies, the ECB is starting to unwind some of its crisis measures - a contrast has helped drive up the euro.

"Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy," Draghi said.   Continued...

European Central Bank President Mario Draghi testifies before the Committee on Economic and Monetary Affairs at the European Parliament in Brussels February 18, 2013. REUTERS/Eric Vidal