RPT-FX risk to inflation could merit ECB move-Constancio

(Repeats story filed late on Thursday)

By Jan Strupczewski

BRUSSELS, March 4 (BestGrowthStock) – Exchange rate fluctuations
that could threaten the European Central Bank’s price stability
target could warrant an intervention on the market, ECB
Governing Council member Vitor Constancio said.

“The euro area has adopted a flexible exchange rate regime,
implying that the external value of the euro vis-a-vis the
currencies of third countries is determined by the market,”
Constancio said in written answers to questions from European
Parliament members.

“This allows the ECB to focus on its objective — the
preservation of price stability — and should contribute to
limit exchange rate volatility,” he wrote in a document dated
March 2, which was obtained by Reuters.

“However, episodes of overshooting and undershooting may
nevertheless develop in exchange rate markets, which may have an
impact on price trends and imply risks to price stability in the
euro area,” he said.

“In these cases, public intervention to limit excessive
exchange rate volatility may be warranted provided it is
coordinated with other countries.”

Constancio’s answers spearhead a parliamentary hearing on
March 23 following the recommendation of European Union finance
ministers in February that he should replace Lucas Papademos as
the ECB’s vice president.

Asked about the euro-dollar exchange rate, Constancio said:

“The ECB, through its president, has been on record numerous
times over the past 18 months indicating that we welcome the
statements by the U.S. authorities that a strong dollar is in
the interest of the United States.”

On the exchange rate of euro against the Chinese yuan, which
is pegged to the dollar, Constancio noted that since the start
of Chinese exchange rate reform in mid-2005, the renminbi rose
against the euro by only 7.4 percent, while it gained 21 percent
against the dollar.

“I therefore welcome China’s continued commitment to move to
a more flexible exchange rate, which should lead to continued
appreciation of the renminbi in effective terms,” he said.

Constancio said the ECB and the U.S. Federal Reserve were in
agreement on exchange rates and that the ECB was in regular
contact with the Chinese authorities.

“The degree of mutual understanding on both sides of the
Atlantic is particularly high and I appreciate that the U.S.
authorities, including Chairman Bernanke and Treasury Secretary
Geithner, indicated that a strong dollar is in the interest of
the U.S. economy, which is also in the interest of the global
economy itself,” Constancio said. He was referring to Ben
Bernanke, chairman of the Fed, and Treasury Secretary Timothy
Geithner.

“The ECB also has regular exchange of views with Chinese
authorities in an open and candid fashion,” he said.

Investing Research
(Editing by Leslie Adler)

RPT-FX risk to inflation could merit ECB move-Constancio