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MNI INTERVIEW: ECB Should Guard Against Euro Weakening-Knot


The European Central Bank should ensure that euro depreciation does not aggravate the loss of eurozone purchasing power from rising energy prices, Dutch central bank president Klaas Knot told MNI.

“The Governing Council is not targeting or responding to a specific level of the exchange rate, but it is clear that when the exchange rate falls it adds to inflationary pressure,” the De Nederlandsche Bank president said in an interview on Wednesday. “Given that most energy prices are invoiced in U.S. dollars, a decline in the euro versus the dollar even aggravates the loss of purchasing power because of the energy price inflation.”

Oil and gas prices have surged since the Russian invasion of Ukraine, feeding inflation. The euro depreciated by 4.3% against the dollar between the ECB’s December meeting and its meeting earlier this month, when it said it would end net bond purchases in the third quarter if data permits and adjust rates “some time” after.

“There is not much we can do about high energy prices, because they are created outside the euro area, they're outside our realm of influence. But let us at least make sure that such problems are not aggravated by a continued depreciation of the euro,” said Knot, who expects asset purchases to wind up in the third quarter as anticipated and is comfortable with current market pricing for rate hikes.

“There is a concern that if the exchange rate weakens too much it aggravates our problems with the high energy inflation in the very short term. We are there to serve our citizens,” he said.

Euro-dollar 12-month chart

Source: Bloomberg

MNI London Bureau | +44 20 3983 7894 |
MNI London Bureau | +44 20 3983 7894 |

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