Italy finmin says officials committed to market exchange

NEW YORK Mon Feb 11, 2013 3:56pm EST

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NEW YORK (Reuters) - Italian Finance Minister Vittorio Grilli said on Monday that there is strong support from the Group of Seven for market-determined currency rates, a comment that comes amid suspicion that some countries are acting to depress their currencies in order to boost their economies.

The G7 leading industrialized nations are considering issuing a statement this week reaffirming their commitment to "market-determined" exchange rates in response to talk of a currency war, two G20 officials said earlier on Monday.

"We have been very clear as Europe and as the G7 that exchange rates should be market determined," Grilli said in an interview with Reuters. "The euro area is set up so that exchange rates are market determined. That is as it should be. We can only hope and recommend that everyone else in the world follows the same policy."

The Group of 20 finance ministers and central bankers are to meet in Moscow on Friday and Saturday.

Grilli said he had no knowledge of the contents of the G7's communique that is expected over the weekend.

He said currency appreciation does put pressure on exporters, adding that "we get complaints" from companies.

"But Europe is set up not to manipulate exchange rates, and we don't want to do it and we don't want anybody else to do it," he said on the sidelines of the Italian Business and Investment Initiative's inaugural summit in New York.

A number of countries fear Japan is weakening the yen to support exports and boost growth. The yen has lost 15 percent against the dollar since October, and last week hit a near three-year low against both the dollar and the euro.

The euro traded off its highs on the day to $1.3392, up 0.22 percent on the U.S. dollar, while gaining 1.09 percent against the yen to 125.25.

The issue of currency depreciation is a thorny one, particularly at a time when most major central banks are committed to an aggressively easy monetary policy, which ends up weakening the value of their currency.

Lawmakers from Latin America, Asia and elsewhere have criticized the U.S. Federal Reserve's various bond-buying programs for weakening the dollar relative to many other currencies.

Italy is going through a wrenching economic reform program that has reduced the government's borrowing costs but has also resulted in declining economic output given the severe austerity measures put in place by the technocratic government of Prime Minister Mario Monti.

The yield on 10-year Italian government bonds, which gauges the premium investors demand to lend money to the government, rose to 4.62 percent on Monday, slightly more than 3 percentage points above the yield on equivalent German debt.

The spread between 10-year Italian and German bond yields has widened steadily since late January, when it stood at about 2.5 percentage points. A widening of yield spreads indicates rising investor concerns about Italy's ability to service its debts.

Italians go to the polls in two weeks to elect a new parliament. Polls suggest the center-left Democratic Party, led by Pier Luigi Bersani, will win a solid lower house majority but may need to strike a deal with Mario Monti's centrists to gain the control of the Senate in order to govern.

Italian interest rates have declined from the height of the euro zone sovereign debt crisis, but in the lead-up to the elections on February 24-25 some of the improvements have been eroded.

Grilli did not expect any new government to back away from reforms, some of which are now codified in the constitution.

"I'm pretty confident this is not just wishful thinking. There are things that are now embedded in the constitutional agreement like a balanced budget....There's no way back."

(Reporting By Daniel Bases and Steven C. Johnson; Addition reporting by Nicola Scevola; Editing by Chizu Nomiyama and Leslie Adler)

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