Strong euro is a powerful deflationary factor: ECB's Noyer

PARIS Mon Apr 28, 2014 4:21am EDT

Bank of France Governor Christian Noyer attends a news conference at Bercy Finance Ministry in Paris January 27, 2014. REUTERS/Charles Platiau

Bank of France Governor Christian Noyer attends a news conference at Bercy Finance Ministry in Paris January 27, 2014.

Credit: Reuters/Charles Platiau

PARIS (Reuters) - The euro's current strength is a powerful deflationary factor and low inflation is likely to persist in the euro zone for some time, European Central Bank policymaker Christian Noyer said on Monday.

Spare capacity and deleveraging by companies and governments have created a low inflation environment that is likely to persist for an extended period, Noyer, who is also governor of the Bank of France, said in an annual letter to the French president.

Though he did not see an imminent threat of a downward spiral in prices, or deflation, Noyer said the euro's strength added to the problem of uncomfortably low inflation.

"Given the weight of imports in the euro area's GDP, such an exchange rate development is a powerful deflationary factor," he said.

"An increase in the exchange rate is equivalent to an unintended and unwanted tightening of monetary policy."

At about $1.38 currently, the euro's strength drives import prices lower and weighs on overall inflation, which on a 12-month basis fell to only 0.5 percent in March, far below the European Central Bank's target of less than but close to 2.0 percent.

Noyer's view of the strong euro echoed recent comments by ECB President Mario Draghi, who has identified the strong euro as a potential trigger for policy action.

Draghi reiterated that stance last week when he said the central bank could print money to buy assets if the inflation outlook deteriorated.

(Reporting by Leigh Thomas; Editing by John Stonestreet)

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Comments (4)
JArbuckle wrote:
#yawn

Apr 28, 2014 10:11am EDT  --  Report as abuse
Leras wrote:
This is a personal opinion by a ECB employee who is most probably ignorant on anything rather than Monetary Policy Theory Interventions and over-appreciates the monetary tools and their effects!

Actual data contradicts that deflation is simply a monetary issue – but its related with actual decay and recession to most Eurozone countries! Deflation in Greece e.g. is far from related with a strong Euro.

We are talking about a recession for 6th consecutive Year (actual data), fake “surpluses” that ignore billions of expenses (2/5 of the goverment budgetary Income) and Political corruption that resembles a dictorship.

Well one good example of how corrupted Greek Government is falls bellow:
Instead of
a)Getting fines and taxes from the infamous “laggard list” that included corrupted politicians, the list was “hidden” (big scandal in the Country),
b) they preferred to “alter” a government Boost to Solar Pannels Investment – by taxing profits – althought the initial agreement with Investors was that profits would be “tax free” for some years!

Thats market trust!
I am not gonna even talk about “Voluntary Defaults”, Bank bailouts while keeping the same Management and the Relationship that the Bank of Greece has with Piraeus Bank.

Well, its not deflation…its corruption…and it appears to be European Related, since before EU, these guys did not have any funds to actually steal so many!

Apr 29, 2014 6:13am EDT  --  Report as abuse
Leras wrote:
This is a personal opinion by a ECB employee who is most probably ignorant on anything rather than Monetary Policy Theory Interventions and over-appreciates the monetary tools and their effects!

Actual data contradicts that deflation is simply a monetary issue – but its related with actual decay and recession to most Eurozone countries! Deflation in Greece e.g. is far from related with a strong Euro.

We are talking about a recession for 6th consecutive Year (actual data), fake “surpluses” that ignore billions of expenses (2/5 of the goverment budgetary Income) and Political corruption that resembles a dictorship.

Well one good example of how corrupted Greek Government is falls bellow:
Instead of
a)Getting fines and taxes from the infamous “laggard list” that included corrupted politicians, the list was “hidden” (big scandal in the Country),
b) they preferred to “alter” a government Boost to Solar Pannels Investment – by taxing profits – althought the initial agreement with Investors was that profits would be “tax free” for some years!

Thats market trust!
I am not gonna even talk about “Voluntary Defaults”, Bank bailouts while keeping the same Management and the Relationship that the Bank of Greece has with Piraeus Bank.

Well, its not deflation…its corruption…and it appears to be European Related, since before EU, these guys did not have any funds to actually steal so many!

Apr 29, 2014 6:13am EDT  --  Report as abuse
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