European Central Bank Keeps Close Eye on Exchange Rates as It Mulls Rate Cuts, Lagarde Says

By Joshua Kirby

The European Central Bank monitors exchange rates closely as it decides monetary policy, President Christine Lagarde said, as the prospect of interest-rate cuts in the eurozone becomes cloudier on the heels of less likely cuts in the U.S.

While the central bank's sole mandate is price stability, currency issues are an important factor, Lagarde said during a discussion at the Peterson Insitute for International Economics in Washington D.C. on Wednesday. "The ECB does not target exchange rates, but obviously we look at it very closely and we monitor developments," she said.

"We have to look at how foreign-exchange variations affect inflation," Lagarde said.

Stubbornly high inflation in the U.S. at the start of the year has called into the question whether the Federal Reserve will be able to lower rates this year without signs of an economic slowdown, Fed Chair Jerome Powell said Tuesday. Powell's comments add to questions over whether the ECB and other central banks will be able to loosen monetary policy as had been widely expected, since a weakening of their currencies versus the dollar risks raising import prices and causing a renewed spike in domestic inflation.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

April 17, 2024 15:16 ET (19:16 GMT)

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