ECB Monitors Euro Exchange Rate as It Prepares to Reduce Stimulus

The European Central Bank is closely monitoring the euro exchange rate as it prepares to announce plans to scale down its large monetary stimulus “later this year,” ECB President Mario Draghi said.

The comments, at the European Union parliament in Brussels, underline the ECB’s caution as it approaches its biggest policy decision in years.

Mr. Draghi said the ECB is increasingly confident it will meet its inflation target and is preparing to “recalibrate” its monetary policy, which includes a EUR60 billion ($71.5 billion) a month bond-buying program.

The ECB chief has previously indicated that the bank will probably announce the future of its bond-buying program, known as quantitative easing, in late October. The program is currently due to run at least through December.

But policy makers are still waiting for signs that the economic recovery is translating into stronger inflation, Mr. Draghi d. The ECB aims to keep inflation just below 2%, but has missed that target for years.

“We still see some uncertainties with respect to the medium-term inflation outlook,” Mr. Draghi said. “Most notably, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring.”

The euro has risen sharply against the dollar in recent months amid a broadening economic recovery in the 19-nation euro area and signals from ECB policy makers that they are preparing to tighten monetary policy.

The ECB needs “to be patient and persistent,” Mr. Draghi said.
Source: Dow Jones