The current weakness of the euro could pose a threat to price stability at a time when inflation is already rising, Bundesbank president Mr Ernst Welteke said today.
"While the economic outlook is running counter to inflationary pressures the euro exchange rate must be watched very closely for possible risks to price stability," Mr Welteke said in a speech prepared for delivery at a financial forum in Brussels.
A copy of the speech was made available by the Bundesbank in Frankfurt.
The weakness of the euro is proving a headache for the European Central Bank under pressure to cut its key interest rates to boost the failing euro-zone economy.
Not only is it undermining public confidence in the new currency just six months to go before it replaces the national currencies of the 12 euro-zone countries, it could also jeopardise price stability because it makes imports more expensive thereby boosting inflation.
The stubbornly high level of inflation in the euro area is the main reason the ECB has refused to cut rates with the exception of a small quarter-point reduction in its "refi" refinancing rate in May despite the sharp deterioration in global economic conditions.
AFP