European Central Bank Considers Response to Rising Euro Value

A policymaker at the European Central Bank (ECB) has raised concerns about the implications of the euro's rapid appreciation, suggesting that continued increases in the currency's value may lead the bank to reassess its monetary policy in the near future.

Concerns Over Strong Euro's Impact on Inflation

ECB board member Martins Kazaks noted that while the bank does not aim for a specific euro exchange rate, a substantial increase could result in diminished inflation expectations within the eurozone. He explained that a stronger euro makes imports less expensive, which can alleviate price pressures and reduce imported inflation rates, as well as limit companies' ability to raise prices amid declining demand.

Potential Effects on Economic Growth

Kazaks cautioned that a robust euro might adversely affect economic performance by diminishing the competitiveness of European exports in international markets. As European goods become pricier compared to foreign alternatives, this could lead to a drop in external demand and a reduction in industrial output. He added that these developments could place pressure on corporate profits and investment levels, as well as employment across eurozone countries.

Monitoring Exchange Rate Trends

The ECB official pointed out that the euro's exchange rate against the dollar has fluctuated within a narrow range in recent months, but has experienced a marked increase since the second quarter of 2025. The full impact of this rise on inflation rates may become evident by next spring.

Interest Rates Remain Unchanged

The European Central Bank has opted to maintain interest rates at 2% for bank deposits, a decision that aligns with market expectations and reflects a commitment to current monetary policy while continuing to monitor economic and inflation trends.