European Central Bank Governing Council member Stournaras: Euro exchange rate is manageable, no reason to adjust policy for now.

At the just concluded February meeting, the European Central Bank decided to maintain interest rates for the fifth consecutive time, keeping the benchmark deposit rate at 2.15%. Although the official statement reiterated the "close monitoring" of exchange rate fluctuations, ECB board member and Governor of the Bank of Greece Yannis Stournaras believes there is no cause for concern. Stournaras stated: "We are continuously monitoring exchange rates and all variables that affect economic activity and inflation." He emphasized that the strengthening trend of the Euro since March 2025 has been incorporated into the ECB's forecast framework, and the current Euro to US Dollar exchange rate remains stable within historical trading ranges. "Most of the appreciation happened in the first quarter of last year," he further explained on Friday, "so this is not a significant fluctuation and should not prompt us to adjust our established policy direction." The above remarks were made less than a day after the ECB decided to maintain the deposit rate at 2% for the fifth consecutive time. On Thursday, ECB President Christine Lagarde reiterated that officials believe the current economy is in a "good state," while downplaying the impact of the recent Euro appreciation. Most investors and economists expect that after eight rate cuts in this cycle, borrowing costs will not be further reduced. Other policymakers also share Stournaras' views on Euro-related issues. Franois Villeroy de Galhau, Governor of the Bank of France, pointed out: "The recent stabilization of the Dollar exchange rate indicates that the current Euro to Dollar exchange rate is around 1.18 - coincidentally, this is the historical average level of the Euro since its inception in 1999." Martins Kazaks, Governor of the Latvian Central Bank, also stated that the Euro exchange rate has remained within a relatively narrow range in recent months and emphasized that these fluctuations have been "incorporated" into the ECB's baseline scenario forecast. However, he warned that if the Dollar were to appreciate "significantly and rapidly," it would dampen inflation prospects in the Eurozone, "potentially triggering policy adjustments." In response, Stournaras believes that the current risks to inflation and economic growth prospects are balanced, describing the decision-making layer as "quite confident." He reiterated, "We should not change our established course of action, our decisions always based on data. So far, this approach has proven effective." Jos Luis Escriv, Governor of the Bank of Spain, also stated separately that he is optimistic about the current price situation but emphasized that decision-makers are prepared to take swift action if necessary. He stated, "We observe stable inflation expectations anchored at the target level, and forecasts for the next two years remain in this range. All indications suggest that maintaining stable rates is currently the best strategy." European economy shows resilience in achieving a soft landing The European economy has shown resilience to external shocks such as tariffs, with GDP expanding by 0.3% in the fourth quarter, surpassing market expectations. Increased government spending plans in Germany and other Eurozone countries are expected to provide continued support for economic growth. However, potential risks should not be overlooked. The unpredictable nature of U.S. trade policy poses a major external threat, while the latest data showing Eurozone inflation rate dropping to 1.7% in January may further strengthen the position of the minority advocating for loose policy within the ECB's Board. Although the ECB forecasts inflation to return to the 2% target level by 2028, the ongoing game between inflation trends and policy paths will continue. Olli Rehn, Governor of the Bank of Finland, wrote in a blog post: "There are real risks of inflation falling below expectations." He listed factors such as weak economic expansion, slowing wage growth, Euro strengthening, and increased imports from China. According to a survey released by the ECB on Friday, professional forecasters maintain their expectations for Eurozone inflation prospects unchanged from October. They believe that long-term inflation in the Eurozone will stabilize at 2% - briefly falling below that level this year, but slightly fluctuating above that level by 2028. Analysts predict that due to better-than-expected economic performance at the end of last year, growth in 2026 will be slightly higher than previously expected. Madis Mller, Governor of the Bank of Estonia, wrote in a blog post: "In the past few months, there have been no significant surprises in the Eurozone economy. The ECB's forecast from December continues to provide a solid basis for rate decisions." Stournaras stated that the ECB has achieved a soft landing and described the current situation as "stable balance."