ECB chief economist Lien said in his speech on Wednesday: “The economic model shows that if the exchange rate of the euro rises by 10% against the US dollar, inflation will drop “significantly” in the next three years, and its impact will reach a “peak” after a year — reducing inflation by 0.6 percentage points.” The appreciation of the euro against the US dollar may be a factor in the decline in inflation, which in turn will prompt policymakers to consider cutting interest rates again. Because the appreciation of the euro will depress the prices of imported goods and services, while weakening market demand for Eurozone exports. However, Lien did not mention in his speech how interest rates should be adjusted to deal with the appreciation of the euro. He said, “The exchange rate is only one of many variables that determine macroeconomic dynamics in the Eurozone. Our overall assessment of economic and financial development is based on a comprehensive assessment of all relevant factors.”

ECB chief economist Lien said in his speech on Wednesday: “The economic model shows that if the exchange rate of the euro rises by 10% against the US dollar, inflation will drop “significantly” in the next three years, and its impact will reach a “peak” after a year — reducing inflation by 0.6 percentage points.” The appreciation of the euro against the US dollar may be a factor in the decline in inflation, which in turn will prompt policymakers to consider cutting interest rates again. Because the appreciation of the euro will depress the prices of imported goods and services, while weakening market demand for Eurozone exports. However, Lien did not mention in his speech how interest rates should be adjusted to deal with the appreciation of the euro. He said, “The exchange rate is only one of many variables that determine macroeconomic dynamics in the Eurozone. Our overall assessment of economic and financial development is based on a comprehensive assessment of all relevant factors.”