European Central Bank Signals Possible Action Amid Rapid Euro Rise

A member of the European Central Bank (ECB) cautioned about the implications of the euro's rapid appreciation, indicating that a sustained rise in the currency might prompt the bank to reassess its monetary policy direction in the near future.

Concerns Over Euro Strength's Impact on Inflation

ECB Council member Martins Kazaks stated that while the bank does not have a specific target for the euro's exchange rate, a notable increase could result in a decline in inflation expectations within the Eurozone.
He explained that the stronger euro makes imports cheaper, which can help alleviate price pressures and reduce imported inflation, while also limiting companies' ability to raise prices due to decreased demand.

Potential Effects on Economic Growth

Kazaks pointed out that a strong euro could negatively affect economic performance by diminishing the competitiveness of European exports in global markets, as European goods become more expensive compared to competitors. This could lead to a decrease in external demand and a reduction in industrial production.
He added that these factors might exert pressure on corporate profits as well as investment and employment levels in Eurozone countries.

Monitoring Exchange Rate Movements

The European official noted that the euro's exchange rate against the dollar has fluctuated within a narrow range in recent months but has seen a significant increase since the second quarter of 2025. He predicted that the full impact of this rise on inflation rates could become evident by next spring.

Maintaining Interest Rates

The European Central Bank decided to keep interest rates unchanged at 2% for bank deposits, a move that aligns with market expectations and reflects the continuation of current monetary policy while monitoring economic and inflation developments.