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Villeroy Says Euro Is Source of Uncertainty and Needs Monitoring

Villeroy Says Euro Is Source of Uncertainty and Needs Monitoring

(Bloomberg) -- The recent euro appreciation is a source of uncertainty and requires monitoring as it could damp inflation, European Central Bank Governing Council member Francois Villeroy de Galhau said on Tuesday.

In an interview with the German newspaper Boersen-Zeitung, the French central bank governor expressed confidence that the ECB will manage a smooth exit from its stimulus program. He also dismissed any scenarios about the future of the program beyond the current end-date as “pure speculation.”

“The recent evolution of the exchange rate is a source of uncertainty which requires monitoring with regard to its possible downward effects on imported prices,” said Villeroy de Galhau. “We did not say anything about what will happen after September. And our monetary policy is not driven by market expectations.”

Recent comments from some ECB policy makers raised expectations that monetary tightening could come faster than previously anticipated, sending the euro to its strongest level in more than three years. It’s gained almost 2 percent against the dollar this year.

Governing Council member Ardo Hansson said on Monday that the ECB should adjust its policy guidance before the summer and shouldn’t have any problems ending net asset purchases in one swoop after September. An account of the December meeting showed officials were open to tweaking their policy guidance soon to align it with the strengthening economy.

Villeroy said the timing and the pace of future rate increases will be dependent on the inflation outlook. The ECB currently plans to buy 30 billion euros ($37 billion) of assets until at least September and says borrowing costs will remain at their present level well past that deadline.

“We are predictable as to the direction of our policy and the sequencing,” he said. “But we are not pre-committed in terms of precise timing. We will make this contingent on the actual progress made in achieving our inflation objective.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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