ECB’s Villeroy: All Our Tools Are Available to Respond to Euro Strength

11 December 2020

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is willing to use any of its monetary policy tools to counter the strength of the euro if the effect on inflation warrants it, Governing Council member François Villeroy de Galhau said Friday.

In an interview with French business news channel BFM Business, Villeroy, who heads the Bank of France, said that the ECB could do more or less than currently envisaged, depending on how financing conditions develop.

Monetary authorities are ‘attentive to anything that can help the economy’, he said. ‘I would like to take this opportunity to say we are also very vigilant on the level of the euro exchange rate against the dollar.’

Although the ECB has no objective specifically with respect to the exchange rate, he said, ‘we are ready, according to this vigilance, to use all our instruments, without any exclusivity.’

Asked what could be done to weaken the common currency versus the dollar, Villeroy repeated, ‘all our instruments without any exclusivity, according to this vigilance’ and noted the importance of the exchange rate for the ECB’s inflation objective.

‘I can only repeat what [ECB President] Christine Lagarde said yesterday, all our instruments are available’, he added.

Speaking of Thursday’s decisions, Villeroy asserted that the Governing Council’s intention ‘was not to give the markets what they expected’, but rather to take the ‘appropriate and important decisions’. In doing so, the attention paid to quantities should not obscure what counts, namely the quality of the ECB’s support, he said.

It comes down to a commitment to keep financing conditions favourable throughout the crisis, he said. ‘…we will do less if the financing conditions remain favourable as today. If we had to, on the other hand, we could do more’, he said.

In assessing financing conditions, the ECB would consider market and banking indicators, financing costs and interest rates, lending volumes and access to bank credit, he said.

That the ECB was now guaranteeing a result – favourable financing conditions - as opposed to obligating itself quantitatively was ‘a rather significant change’, he said.

Villeroy denied that ECB monetary policy was creating asset bubbles, reminding that price stability was the lone objective.

‘As long as we have an inflation that is too weak, as it is today, not only do we have the capacity to intervene … but we have an obligation to intervene, and we are thus supporting the economy through the crisis’, he said.

No one would welcome a rate hike today, he said. However, the ECB is attentive to asset prices, he added.

‘If we believe that in a number of areas there are risks of bubbles - I would not say that this is the case today - we can take, and it is generally the national authorities who do, what are called macro-prudential measures, that is that is to say measures of vigilance and, if necessary, putting the brakes on’, he said.