“A strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for our price stability,” Mr. Draghi said at a news conference during meetings of the International Monetary Fund.
Mr. Draghi’s comments are notable because central bankers typically shy away from commenting on exchange rates set by the financial markets. But he has highlighted in recent weeks the effect the strong euro has had on inflation, and has said it is an increasingly important factor on the ECB’s assessment of price trends.
His comments Saturday went further than he has in the past by signaling a monetary policy response should the euro rise further, though he didn’t give a specific level that would trigger ECB action. The euro fetched nearly $1.39 late Friday, well above its historical average. A more expansive monetary policy usually weakens a currency by increasing the amount of money in the financial system.
ECB officials stepped up their rhetoric about the euro last month when the rate approached $1.40. Their comments haven’t significantly weakened the currency yet, but they appear to have been successful in capping the euro’s rise.
A strong currency makes an economy’s goods and services more expensive in global markets, damping exports. It also weakens inflation by reducing the costs of imported goods.