The European Central Bank left interest rates unchanged even as a stronger currency threatens the euro area’s recovery from recession.
Policy makers meeting in Frankfurt today kept the benchmark rate at a record low of 0.75% , as forecast by all 60 economists in a Bloomberg News survey. President Mario Draghi holds a press conference at 2:30 p.m. to explain the decision.
Recent indicators suggest the euro-area economy may return to growth later this year, easing pressure on the ECB to lower rates further. At the same time, a rising euro could hurt exports and stymie the recovery before it has begun, and looser monetary policy in the U.S. and Japan may continue to weaken the dollar and the yen.
“The euro is a little bit too strong,” Bernard Charles, Chief Executive Officer at the French software maker Dassault Systemes SA, said in an interview with Bloomberg Television today. This will “have an effect this year” on the economy and its “capacity to export,” he said.
The common currency rose 0.3% to $1.3568 today. It reached a 14-month high against the dollar this month and a three-year high against the yen. It has climbed 11 percent on a trade-weighted basis since Draghi pledged on July 26 to do whatever is needed to preserve Europe’s monetary union.
Bank of England
The Bank of England kept its target for bond purchases at 375 billion pounds ($589 billion) and left the key rate at a record low of 0.5%.
Draghi may face questions today about Italy’s Banca Monte dei Paschi di Siena SpA, which is engulfed in criminal probes over its use of derivatives to hide losses. Draghi has yet to publicly comment on his role in overseeing Monte Paschi, the world’s oldest bank, when he was governor of the Bank of Italy.
Still, the focus is likely to be on the euro, which hit $1.3711 on Feb. 1, the highest since November 2011.
A stronger currency damps inflation by reducing prices on imports and poses a threat to growth by increasing the cost of exports. Stora Enso Oyj, Europe’s biggest papermaker, said this week exchange rates had a negative impact on 2012 sales.
“Markets will want to hear stronger words on the foreign- exchange front to stop the upward trend currently in place,” said Nick Matthews, senior euro-area economist at Nomura International Plc in London. “But we doubt this will happen. Draghi is likely to reaffirm last month’s position” that the exchange rate is not a policy target for the ECB, he said.
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