Weidermann comments suggest weak economic data could be ECB policy’s Achilles heal

FXstreet.com (Barcelona) - Recently in a release, European Central Bank Governing Council member Jens Weidmann states the bank would only cut interest rates if the economic data continues to paint a more grim picture. “We didn’t change interest rates at our last meeting as they are currently appropriate and in accordance with our assessment of economic developments, price stability and our monetary analysis,” Weidmann, added today in Washington. “Of course, we will reassess the adequacy of the rates if the data change.”

Following the comments, the euro rose steadfastly, climbing almost half a cent to $1.3130. Indeed, the ECB had left its benchmark rate unchanged at a record low of 0.75% on April 4. Simultaneously, with doubts mounting about the central bank’s forecast for an economic recovery later this year, President Mario Draghi signaled policy makers are looking at a wide spectrum of measures, including – but not limited to – lower rates.

“We shouldn’t expect too much” from a potential rate cut, Weidmann said today. “Monetary policy will not be able to solve structural problems in the euro area.” When asked what the ECB could do to encourage lending to small and medium-sized companies in southern Europe, Weidmann said that “higher interest rates for these companies might simply show a higher credit risk,” and that it’s not the central bank’s job “to influence the market on this issue.”

“What we can do is provide liquidity,” Weidmann said. “We have already done this with two long-term loans and this has helped” in addressing funding problems in Europe, he said. Finally, on the topic of the Bank of Japan’s plan to increase its bond purchases, a move that has caused the yen to weaken, Weidmann stated that “monetary policy must never manipulate exchange rates.”