MercoPress. South Atlantic News Agency

Dragui 'pleased' with a weakened Euro exchange rate, which could decline further

“Markets have perceived that monetary policy in the Euro zone and the US are, and are going to stay, on a divergent path for a long period of time” said Draghi

European Central Bank President Mario Dragui signaled he was pleased with the recent decline in the Euro's exchange rate and outlined a number of forces that may weaken it further, providing a potential boost to weak inflation in the region.

Mr. Draghi, at his monthly news conference after the bank held its key interest rates at record lows, made unusually blunt comments about exchange rates. Central bankers typically shy away from such direct remarks on currencies.

Instead, Mr. Draghi offered a long list of reasons why the Euro has cheapened, which in addition to raising inflation should provide a boost to the bloc's fragile economic recovery via stronger exports.

“The fundamentals for a weaker exchange rate are today much better than they were two or three months ago,” Mr. Draghi said. Since a recent peak around 1.40 dollars in the spring, the Euro has fallen steadily. The currency, which had been trading at 1.3386 just before Draghi's comments, fell to 1.3340 after the news conference before recovering slightly.

Draghi cited a number of factors for the currency's drop, including less capital flowing into the region, a reduction in Euro holdings by other central banks and expectations that the U.S. Federal Reserve would raise interest rates far in advance of the ECB.

“Markets have perceived that monetary policy in the Euro [zone] and United States are, and are going to stay, on a divergent path for a long period of time,” Draghi said.

At the ECB's June 5 meeting, central bank officials reduced their key lending rate to 0.15% and, for the first time, set a negative rate on bank deposits parked overnight at the ECB, of -0.1%. They also announced four-year loans at very low interest rates to banks on the condition that they, in turn, raise lending to the private sector.

The loans, which will become available starting in September—should help businesses, Mr. Draghi said, noting that a recent ECB survey detected the first pickup in credit demand since the onset of the financial crisis.

More stimulus is likely to come. The ECB has “intensified” preparations to purchase bundles of bank loans called asset-backed securities, and the preparations will yield results, he said. The groundwork “is with the expectation that we will take action in this field,” Draghi said.