ECB UPDATE2: Policymakers Cite 'Concerns' of Euro Overshoot

--Adds Further Details in Final Paragraphs

By Jack Duffy

     PARIS (MNI) - European Central Bank policymakers expressed "concerns" about

a possible over appreciation of the euro in their most recent policy meeting on

July 20.

     According to the accounts of the meeting, released Thursday, policymakers

"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."

     But "concerns were expressed about the risk of the exchange rate

overshooting in the future," according to the minutes.

     The euro fell briefly back below the $1.17 level after the accounts were

released, dropping to around $1.1675 before rebounding.

     Policymakers in July also expected upcoming headline inflation to be

"slightly lower than previously expected, mainly owing to recent developments in

oil prices and exchange rates," according to the accounts.

     The ECB Governing Council will meet again on Sep 7 to review new staff

forecasts on growth and inflation and to begin a discussion of tapering the

central bank's E2.3 trillion quantitative easing program.

     Analysts have speculated that because of the stronger euro, a detailed

tapering announcement could be delayed until the following policy meeting on Oct

26.

     The euro touched a high of around $1.19 earlier this month, putting it up

by about 13% on year before its recent decline.

     The July meeting accounts said there was "broad agreement" among council

members for a "steady handed and persistent" monetary policy and for keeping all

elements of the bank's current forward guidance in place. 

     However, "a suggestion was made that some consideration be given to an

incremental adjustment in the language on forward guidance, because postponing

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," according to the accounts. 

     Ultimately, it was decided to leave forward guidance unchanged "to avoid

sending signals that could be prone to over-interpretation and might prove

premature," the accounts said. 

--MNI Paris Bureau; tel: +33 1-42-71-55-41; email: jack.duffy@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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