Thursday, 17 August 2017 18:58 WIB | FISCAL & MONETARY | ECBMoneter
European Central Bank officials said they™re worried that the euro might strengthen more than justified by an improving economy.
œWhile it was remarked that the appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-a-vis the rest of the world, concerns were expressed about the risk of the exchange-rate overshooting in the future, an account of the July 19-20 policy meeting showed. œIn this context, the point was made that, looking ahead, the Governing Council needed to gain more policy space and flexibility to to adjust policy and the degree of monetary policy accommodation, if and when needed, in either direction.
The single currency has gained 11 percent against the dollar this year and 17 percent on a trade-weighted basis as an economic recovery spreads through the 19-nation region. That appreciation highlights the challenges policy makers face as they head for a gradual exit from monetary stimulus.
At their meeting, policy makers discussed making œincremental changes to their forward guidance. œPostponing an adjustment for too long could give rise to a misalignment between the Governing Council™s communication and its assessment of the state of the economy, which could trigger more pronounced volatility in financial markets when communication eventually had to shift, according to the account.
The region™s economy gathered pace in the second quarter, growing 0.6 percent from the first three months of the year. Euro-area inflation held at 1.3 percent in July -- enough to argue that deflation risks have disappeared, but too little to meet the ECB™s goal.
The Governing Council stressed that the œoverall degree of accommodation was determined by the combination of all the monetary-policy measures, even though asset purchases continued to be a œkey instrument if an adjustment of the policy stance was needed. œIn this context, it was also suggested that the stock versus flow effects of the asset purchases be considered.