BERLIN, Feb 6 (Reuters) - A significant appreciation of the euro could trigger a monetary policy response from the European Central Bank, wrote ECB policymaker Martins Kazaks in a blog post on Friday.
Kazaks Warns Euro Strengthening May Prompt ECB Policy Changes
Impact of Euro Appreciation on ECB Policy
BERLIN, Feb 6 (Reuters) - A significant appreciation of the euro could trigger a monetary policy response from the European Central Bank, wrote ECB policymaker Martins Kazaks in a blog post on Friday.
Current Euro-Dollar Exchange Rate
While the ECB Governing Council does not pursue a specific exchange rate target, "a sizeable and pacey euro strengthening would lower inflation outlook via weakening competitiveness and economic activity, thereby potentially triggering a policy response," he wrote.
Inflation Projections and Time Lags
Kazaks noted that the euro-dollar exchange rate has fluctuated within a relatively narrow range in recent months, with the last significant appreciation occurring in the second quarter of 2025, which currently appears to be permanent.
ECB's Interest Rate Decisions
Due to time lags, the peak effect of this appreciation on inflation will only become visible in spring, he said.
However, this has already been taken into account in the ECB's baseline forecast, added the Latvian governor.
The European Central Bank left interest rates on hold as expected on Thursday.
ECB President Christine Lagarde said at a press conference after the rate announcement that the Governing Council did spend time discussing exchange rate moves after the dollar tumbled last week.
Asked about the currency, Lagarde said the ECB was keeping a close eye on markets but ultimately concluded that no big change has taken place in recent months.
(Reporting by Reinhard Becker and Ludwig Burger Writing by Miranda MurrayEditing by Linda Pasquini)
