ECB Reveals the Exchange Rate is Not its Objective

Christine Lagarde, the European Central Bank president, does not see the Euro’s recent appreciation as a fundamental inflation problem. She still admitted that it might harm prices in the medium term. 

Even though ECB discussed the Euro’s appreciation, Legarde assured that the exchange rate is not the central bank’s objective. However, the Euro has negative implications for inflation. 

Lagarde has reiterated on several occasions that the central bank does not target the exchange rate. 

ECB, ECB Reveals the Exchange Rate is Not its Objective

The Eurozone’s Economic Recovery Remains Uncertain

Since the June meeting, the Eurozone’s economic activity has experienced a strong rebound. However, it is losing momentum because of the loss of strength in the service sector. Besides, the coronavirus pandemic poses a threat and uncertainty to its effectiveness.

While the manufacturing sector’s activity has continued to improve, momentum in the services sector has slowed somewhat recently. The strength of the recovery remains surrounded by significant uncertainty.

It remains highly dependent on future developments in the pandemic and the success of containment policies.

According to the latest inflation data, the annual price has grown negative. It was -0.2% in August when the objective was close to 2%. Moreover, core inflation has dropped sharply to 0.4%. As expected, the crisis is cutting prices. Legarde wanted to define that this monthly data did not represent the Eurozone’s real situation. In the medium term, inflation will recover positive territory. Legarde has affirmed that ECB does not forecast deflation, and the risks have been reduced. On the other hand, the central bank has already continued the strategic review that includes modifications to inflation measures.

Merrill Lynch from Bank of America stated that the Euro’s appreciation against the dollar had been too pronounced. The Eurozone economy is in the middle of its worst recession and far from its inflation target.

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