Draghi says euro exchange rate important for growth, prices

BRUSSELS (Reuters) - The euro's exchange rate is not a policy target for the European Central Bank but it does pose a "downside risk" to inflation that the ECB will have to assess, ECB President Mario Draghi said on Monday.

The euro hit a 15-month high against the dollar earlier this month, complicating the ECB's policy-making tasks by weighing on growth and feeding expectations that it may have to take fresh policy action, which some ECB members oppose.

"The exchange rate is not a policy target but it is important for growth and price stability," Draghi told European Parliament lawmakers in a prepared statement, adding that the euro's appreciation could threaten to pull inflation down too far.

The ECB targets inflation of close to, but below, 2 percent.

"Inflation is expected to decline to below 2 percent in the near term," Draghi said.

"We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile, because it's always through price stability that we address issues like that," he later added in response to a question.

The Group of 20 nations declared on Saturday there would be no currency war and Japan's expansive policies, which have driven down the yen, escaped direct criticism in a statement thrashed out in Moscow by G20 policymakers.

"The exchange rate should reflect fundamentals," Draghi said, adding that the euro's exchange rate of the euro was "around its long-term average."

The G20 statement was not disappointing, he said.

"What I did say at the G20 in Moscow, I urged all parties to (exercise) very, very strong verbal discipline," Draghi said.

While G20 finance ministers and central bank governors can promise not to devalue their currencies directly, there can be no guarantees while central banks are pumping money into economies to make them grow again.

"Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy," Draghi said.

"In this sense, I find really excessive any language referring to currency wars."

Turning to the economic outlook for the euro zone, Draghi said weakness in early 2013 should be followed by a very gradual recovery later in the year.

"The risks surrounding the economic outlook for the euro area continue to be on the downside," he said, though he did not single out the currency's strength as a growth risk.

However, Draghi did say the appreciation of the euro was one of the "downside risks" to price stability, though overall these were broadly balanced.

He said repeatedly that the ECB's monetary policy is "accommodative" and stressed that the central bank's top priority is to enhance its transmission across the euro zone.

(Reporting by Robin Emmott, writing by Paul Carrel. Editing by Jeremy Gaunt.)

Source: http://news.yahoo.com/euro-exchange-rate-important-growth-prices-draghi-150227449--finance.html

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