Draghi Says Euro Gain Must Be Monitored as Source of Uncertainty

Mario Draghi said the appreciation of the euro is a risk that warrants close attention.

“The economic expansion, which accelerated more than expected in the first half of 2017, continues to be solid and broad-based across countries and sectors,” the European Central Bank president told reporters at a news conference in Frankfurt on Thursday. “At the same time, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability.”

The single currency climbed as Draghi spoke, rising as much as 1.2 percent on the day, and breaking above $1.20.

The euro’s surge this year — by more than 14 percent against the dollar and almost 6 percent on a trade-weighted basis — was reflected in a downgrade to the ECB’s inflation outlook even as Draghi said economic growth remains solid. That highlights the difficulty policy makers face as they debate the future of their bond-buying program — which has already topped 2 trillion euros ($2.4 trillion) — and is scheduled to continue at a monthly pace of 60 billion euros until the end of this year.

Draghi, who has for months put off any official discussion on the possibility of an exit from quantitative easing, said a decision on the “recalibration” of asset purchases beyond 2017 will be made in the fall. The final two policy meetings of the year are scheduled for Oct. 26 and Dec. 14. Draghi said the “bulk” of the decisions will be made next month.

Early Days

The ECB chief described the discussion on QE as “very, very preliminary” and that the Governing Council considered “various scenarios.” Policy makers want to see the work of the technical committees before deciding, he said.

The slow pick-up in consumer-price growth may give officials reason to wait longer. The ECB now sees inflation at 1.2 percent in 2018 and 1.5 percent in 2019, well below the goal of just below 2 percent.

Draghi reiterated that interest rates will be kept low for an extended period, and said officials did not discuss whether they could be raised before net asset purchases end.

Earlier on Thursday, the Governing Council kept interest rates unchanged and also maintained their previous forward guidance on quantitative easing. Economists foresee the first hike in 2019 or later.
Source: Bloomberg