Draghi Devaluing Euro Cheers ECB as Inflation Seen Fading
Mario Draghi’s strategy for reviving the euro area looks like devaluation.
While the European Central Bank president says the exchange rate isn’t a policy target, officials aren’t secretive about their approval of the currency’s 9% slide. The depreciation increases the cost of imports and boosts exporters’ competitiveness, aiding the effort to revive inflation that data tomorrow will probably show is at the weakest since 2009.
The euro dropped from a 2 1/2-year high in May as officials unveiled a medley of stimulus measures.
“When Draghi mentioned expanding the size of the balance sheet, I think he was secretly thinking of the exchange rate,” said Martin Van Vliet, senior euro-area economist at ING Groep NV in Amsterdam.
The ECB may look past conventional measures to maintain pressure on the euro after saying this month that interest rates have reached the lower bound.
The currency slumped as low as $1.2664 today, the weakest since November 2012, after reaching $1.3993 on May 8, just before Draghi said officials were “comfortable” with taking action.
“The ECB’s policy has been fairly effective in weakening the euro,” said Nick Matthews, senior economist at Nomura International Plc in London.
Draghi has said policy makers will take further action to boost prices if needed. With interest-rate cuts off the table; that puts the focus on asset purchases and targeted loans as he seeks to steer the balance sheet back toward levels seen at the start of 2012, when it totalled about 3 trillion euros compared with 2 trillion euros now.
Source: bloomberg- Draghi Devaluing Euro Cheers ECB as Inflation Seen Fading
