FRANKFURT (Reuters) - If the euro were to appreciate strongly, it would threaten economic growth, Germany’s Bundesbank said on Monday, adding that there were further risks from vulnerabilities in some emerging economies as well as geopolitical tensions.
“If the euro were to appreciate strongly, the result would be downside risks for the economy,” the Bundesbank said in its monthly report.
The euro has fallen nearly 20 percent against the dollar since May last year and nearly 10 percent since the start of December, when it became clear that a sovereign bond-buying program was on the way in mainland Europe.
On Friday, German Chancellor Angela Merkel threw her support behind the European Central Bank’s loose monetary policy, suggesting it had supported reform efforts in countries such as Spain and Portugal by preventing the euro from rising too much.
The Bundesbank said a rise in prices at the consumer level would likely strengthen, firstly due to the euro’s depreciation against other major currencies and then later thanks to a rise in costs.
Earlier this month, the Bundesbank predicted consumer price inflation would rise by 0.5 percent 2015, 1.8 percent in 2016 and 2.2 percent in 2017.
Reporting by Michelle Martin; editing by John O'Donnell