Euro gains blunted stimulus boost to inflation: Lagarde

Frankfurt am Main

PRESIDENT Christine Lagarde said the recent appreciation of the euro has partly offset the positive impact that the European Central Bank's stimulus had in boosting inflation and reiterated that policymakers stand ready to adjust all of their instruments if needed.

The Governing Council will carefully assess all the information coming from the euro-area economy, including developments in the exchange rate, with regard to their impact on the medium-term inflation outlook, she said on Sunday.

"When it comes to meeting our price stability goal, there is and there will be no complacency," Ms Lagarde said in her remarks at the meeting of the Council of Governors of the Arab Central Banks and Monetary Authorities. "Monetary policy will continue to play its role in the euro area with full commitment to its mandate."

Her comments show the predicament that the ECB is facing with the euro jumping more than 10 per cent since March, and inflation below zero for the first time in four years.

Ms Lagarde's cautious remarks on Thursday, when the central bank kept its stimulus settings on hold, failed to stop the currency's gain. Chief economist Philip Lane sought to toughen the tone on Friday, warning that the appreciation this year has dampened the outlook for price growth.

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Finnish governor Olli Rehn followed up on Saturday, arguing that underlying price pressures in the euro area have stabilised at a low level that isn't in line with the ECB's goal of inflation just below 2 per cent.

Vice-president Luis de Guindos called the exchange rate "one of the most important variables" in terms of macroeconomic performance, and said the institution is monitoring it closely.

The single currency opened little changed on Monday, trading at US$1.1857 at 9.33am Frankfurt time. Earlier this month it crossed US$1.20 for the first time in more than two years. BLOOMBERG