European Central Bank Governing Council member Jens Weidmann said Monday that easier financing conditions in the euro area over the medium term could more than offset the short-term impact of a strong euro.
Speaking at a Bundesbank conference in Frankfurt, Weidmann repeated that the exchange rate was not a policy target but emphasized that the ECB would take the euro’s impact on inflation into account in its monetary policy decisions.
Weidmann noted that the strengthening of the euro was in part driven by renewed investor interest in Eurozone government bonds that had also resulted in a significant reduction in bond yields.
“The short-term dampening effect of the currency appreciation is accompanied by positive growth impulses from easier financing conditions,” Weidmann said. “Over the medium to long term, the expansive financing effects should outweigh,” he said.
Nevertheless, Weidmann reiterated that the Governing Council “will closely monitor exchange rate developments” and take them into account in its monetary policy decisions.
At the same time, Weidmann, who heads the German Bundesbank, rebuffed any calls to make the exchange rate a target of monetary policy.
“Monetary policy of the euro area since its inception for good reasons has been geared towards securing price stability,” Weidmann said. “An exchange-rate target could conflict with the price stability mandate.”