Draghi’s Strategy for Reviving Europe Looks Like Devaluation

While the European Central Bank president says the exchange rate isn’t a policy target, officials aren’t secretive about their approval of the currency’s 9 percent slide. The depreciation increases the cost of imports and boosts exporters’ competitiveness, aiding the effort to revive inflation that data tomorrow will probably show is at the weakest since 2009.

The euro dropped from a 2 1/2-year high in May as officials unveiled a medley of stimulus measures. It consolidated below $1.30 when Draghi cut rates this month and signaled a willingness to grow the ECB’s balance sheet by as much 1 trillion euros ($1.3 trillion). Details of a plan to buy assets will probably come this week after the Governing Council meets in Naples, Italy.

“When Draghi mentioned expanding the size of the balance sheet, I think he was secretly thinking of the exchange rate,” said Martin Van Vliet, senior euro-area economist at ING Groep NV in Amsterdam. “I’m sure he’s happy to see that the euro has been going down. He’s well aware that one important channel of policy transmission is the exchange rate.”

Bloomberg

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