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Eyes On The RBA

MNI (London)
By Christian Vits
     FRANKFURT (MNI) - European Central Bank Governing Council member Jens
Weidmann Thursday underlined that the recent rise of the euro against the dollar
won't hamper economic growth in the currency bloc.
     "The recent appreciation of the euro seems unlikely to jeopardise the
expansion," Weidmann said at a conference in Frankfurt. "In fact, it is -- at
least in part -- rather a reaction to the brighter growth prospects of the euro
area."
     During the past three months, the euro gained 5.7% against the dollar,
lessening price pressures in the euro area.
     Still, the ECB will "monitor closely any impact that foreign exchange rate
movements might have on our primary target of price stability," Weidmann added.
Domestic price pressure, measured by core harmonised inflation, stands at 1.2%
in the euro area today.
     He also noted that given the rather subdued inflationary pressure at
present, an accommodative monetary policy stance "remains appropriate" in the
euro area and stressed that even after the ECB's net asset purchases have ended,
the monetary policy stance will "remain loose".
     At the same time, the favourable economic development "lends credence to
the expectation that wage growth and therefore domestic price pressures will
gradually increase in keeping with a path towards the Governing Council's
definition of price stability," Weidmann said.
     He reiterated that if the economic expansion progresses as currently
expected, "substantial net purchases beyond the announced amount do not seem to
be required."
     With a view to the recent stock market turbulences Weidmann noted that
central banks "must not shy away from necessary guidance for fear of market
backlash," as long as they use communication as a policy tool.
     Weidmann again emphasised his criticism over government bond buys and
argued that such purchases "involve the fundamental risk of mutualising
sovereign liability risks through the central banks' balance sheets. The
national central banks have become the most important creditors to their
governments, which might ultimately put the independence of monetary policy at
risk," he said.
--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com