ECB officials rebuff currency targeting as G20 meets

MOSCOW/FRANKFURT Fri Feb 15, 2013 7:00am EST

Federal Reserve Chairman Ben Bernanke waits before a meeting of the G20 Finance Ministers in Moscow February 15, 2013. The head of the European Central Bank and its two German policymakers pushed back on Friday against political pressure to target the euro's exchange rate ahead of meeting of Group of 20 finance ministers. REUTERS/Sergei Karpukhin

Federal Reserve Chairman Ben Bernanke waits before a meeting of the G20 Finance Ministers in Moscow February 15, 2013. The head of the European Central Bank and its two German policymakers pushed back on Friday against political pressure to target the euro's exchange rate ahead of meeting of Group of 20 finance ministers.

Credit: Reuters/Sergei Karpukhin

MOSCOW/FRANKFURT (Reuters) - The head of the European Central Bank and its two German policymakers pushed back on Friday against political pressure to target the euro's exchange rate ahead of meeting of Group of 20 finance ministers.

Speaking ahead of the meeting in Moscow, ECB President Mario Draghi said recent loose talk on currencies was "inappropriate, fruitless and self-defeating".

Bundesbank chief Jens Weidmann, a strong voice on the ECB's 23-man Governing Council with whom Draghi in the past has been at odds, earlier weighed in to say the euro was not seriously overvalued and that the ECB would not change monetary policy based on its impact on inflation alone.

"All this chatter that has been undertaken in the past few weeks is either inappropriate or fruitless - in all cases it's self defeating," Draghi said in opening remarks at a news conference after meeting with Russian central bank officials.

The Italian head of the bank had said last Thursday that the ECB would monitor the economic impact of the strengthening euro, feeding expectations the climbing currency could open the door to an interest rate cut.

He stuck to that line in Moscow, saying: "The mandate of the ECB is to pursue price stability in both directions in the medium term."

"The exchange rate is not a policy target, but the exchange rate is important for growth and price stability," Draghi said.

Euro zone inflation fell to a two-year low of 2 percent in January - just shy of the ECB's target of close to, but below 2 percent.

By linking the euro's exchange rate to growth and price stability, Draghi has achieved a deft piece of verbal intervention, analysts say. The euro hit a 15-month peak of $1.3711 on February 1, before easing slightly.

POLITICAL PRESSURE

But both Weidmann and Joerg Asmussen, the German member of six-member Executive Board that forms the nucleus of the Governing Council, said the ECB would not target the euro's exchange rate.

"I don't think that Mario Draghi was trying to talk the euro up or down," Weidmann said of the ECB president's comments last Thursday, adding that the ECB "will abstain from manipulating or directly targeting the exchange rate."

Asmussen told Germany's Deutschlandfunk radio:

"In the last couple of days the Group of Seven biggest industrial nations made clear once again that currency exchange rates should be market-based and that we have no exchange rate targets and that's true for us at the ECB too."

French President Francois Hollande last week raised the possibility of political interference in exchange rate policy when he called for a medium-term target for the euro's value, a move to counter its recent appreciation.

"I fear a politicization of the exchange rate," Weidmann told news agency Bloomberg in an interview.

"I saw indications of that in Japan but you could as well refer to recent statements by European politicians not too far from here," he added in a thinly veiled rebuff of Hollande's call for a currency target.

(Writing by Paul Carrel; Editing by John Stonestreet and Patrick Graham)