The council member of the European Central Bank, Jens Weidmann stated that the exchange rate of Euro will not be able to derail the economic recovery process of the region. Weidmann currently is the head of the Germany’s Bundesbank and according to him; the Euro exchange rate is not a threat to the European economy, at least at this point of time. He added that the current exchange rates are not fully out of line with the fundamentals and kind of corresponds to the historical average roughly.
Since the start of last month, Euro has declined by 4% against the greenback. Incidentally, the President of European Central Bank, Mario Draghi dropped a reference to the downside inflation risks that its appreciation has resulted in the policy statement of this month. Weidmann clearly stated that ECB has no targets of changing the exchange rate right at this point; however, the same may impact on the overall economic outlook assessment to be done by the ECB.
Not only for the policy assessment purpose, but the exchange rate movements are also considered for taking a stance on the monetary policy as well. The exchange rates are additionally expected to have an influence on the inflation rates in future and therefore these enter the policy deliberations of the European Central Bank. Euro, the currency which is shared among 17 nations of the European continent, is currently trading at $1.3037.
As far as Weidmann is concerned, ECB will continue with its accommodative stance as long as they feel it’s necessary. ECB, incidentally, has flooded banking system with over 1 trillion Euros through cheap loans. The benchmark interest rate has also been cut to 0.75%, a record low figure.
Weidmann also commented that the ECB needs to see that the monetary policy throughout the world is pretty expansionary. This may result into some of the markets that ECB observes posing risks for the financial stability. According to Weidmann, the low borrowing costs in the Germany have played an important role in driving up the real estate prices.
Weidmann does not think that current scenario is kind of a price bubble. However, if strong price increases are experienced, ECB needs to judge against the background of the pretty much muted development experienced in the past. Apart from that, the credit development may also not be dynamic.