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ECB officials rebuff FX targeting

Feb 15 2013 11:39

Frankfurt - The head of the European Central Bank and its two German policymakers pushed back against political pressure to target the euro's exchange rate ahead of meeting of Group of 20 financial leaders on Friday.

Speaking ahead of the meeting in Moscow, ECB President Mario Draghi said recent loose talk on currencies was "inappropriate, fruitless and self-defeating".

Bundesbank chief Jens Weidmann, a strong voice on the ECB's 23-man Governing Council with whom Draghi in the past has been at odds, earlier weighed in to say the euro was not seriously overvalued and that the ECB would not change monetary policy based on its impact on inflation alone.

"All this chatter that has been undertaken in the past few weeks is either inappropriate or fruitless - in all cases it's self defeating," Draghi said in opening remarks at a news conference after meeting with Russian central bank officials.

The Italian head of the bank had said last Thursday that the ECB would monitor the economic impact of the strengthening euro, feeding expectations the climbing currency could open the door to an interest rate cut.

Both Weidmann and Joerg Asmussen, the German member of six-member Executive Board that forms the nucleus of the Governing Council, said the ECB would not target the euro's exchange rate.

"I don't think that Mario Draghi was trying to talk the euro up or down," Weidmann said, adding that the ECB "will abstain from manipulating or directly targeting the exchange rate."

French President Francois Hollande last week raised the possibility of political interference in exchange rate policy when he called for a medium-term target for the euro's value, a move to counter its recent appreciation.

"I fear a politicization of the exchange rate," Weidmann told news agency Bloomberg in an interview.

"I saw indications of that in Japan but you could as well refer to recent statements by European politicians not too far from here," he added in a thinly veiled rebuff of Hollande's call for a currency target.

The G20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of Seven rich nations tried, and spectacularly failed, to speak on currencies with one voice.

The G7 issued a joint statement on Tuesday reaffirming "our longstanding commitment to market determined exchange rates". Yet the show of unity was quickly undermined by off-the-record briefings critical of Japan.

"In the last couple of days the Group of Seven biggest industrial nations made clear once again that currency exchange rates should be market-based and that we have no exchange rate targets and that's true for us at the ECB too," Asmussen told Germany's Deutschlandfunk radio.

The euro hit a 15-month peak of $1.3711 on Feb. 1, before easing slightly.

The euro's strength "is one factor among many in determining future inflation rates", Weidmann, who heads Germany's Bundesbank said in the Bloomberg interview conducted on Feb. 13.

He added: "We will certainly not justify any monetary policy decision with one single factor".

g20  |  european central bank  |  ecb


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