Draghi says a stronger euro would trigger looser ECB policy

Sat Apr 12, 2014 4:54pm EDT
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By Jan Strupczewski and Krista Hughes

WASHINGTON (Reuters) - The European Central Bank will ease monetary policy further if the euro keeps strengthening, President Mario Draghi said on Saturday as world finance chiefs ramped up pressure on Europe to ward off deflation.

In the clearest signal yet the ECB was prepared to launch a stimulative asset-purchase program, Draghi said the euro's exchange rate had become increasingly important to policy and would act as a trigger.

"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," he told a news conference.

The issue of weak euro zone inflation took center stage at meetings of top finance ministers and central bankers on Saturday, with the International Monetary Fund's steering committee urging the ECB to consider acting if low inflation became persistent.

"The Fund is recommending more monetary easing to the ECB, and rightly so," said Guido Mantega, Brazil's finance minister.

The world's financial markets are watching closely. Last week, the ECB kept interest rates steady but opened the door to turning on its money-printing presses to boost the weak euro zone economy and inflation. At that time, Draghi said the ECB had achieved unanimity that asset purchases, or so-called quantitative easing, might be needed.

Over the past 12 months, the euro has strengthened by nearly 5.5 percent against the dollar and by nearly 10 percent against the yen. In recent weeks, it has reached levels against the dollar not seen since late 2011. It ended last week at just below $1.39.

Draghi said on Saturday that euro appreciation over the last year was an important factor in bringing inflation in the currency bloc down to its current low levels, accounting for as much as a half percentage point of the decline in the annual rate, which stood at only 0.5 percent year-on-year in March. The ECB aims to keep inflation close to but under 2 percent.   Continued...

President of the European Central Bank Mario Draghi and U.S. Federal Reserve chair Janet Yellen speak before the G20 finance ministers and central bankers family portrait during the IMF/World Bank 2014 Spring Meeting in Washington April 11, 2014. REUTERS/Joshua Roberts