ECB's Praet says euro fx rate within normal range

Reuters

By Jens Hack and Sakari Suoninen

MUNICH, Oct 15 (Reuters) - The euro is trading within arelatively normal band in foreign exchange markets at themoment, European Central Bank Executive Board member Peter Praetsaid on Tuesday, indicating it is not a great worry for thecentral bank.

Praet, who has the powerful economics portfolio within hisremit, also said that U.S. budget problems were not affectingthe central bank's monetary policy yet.

"We are in a relative normal range in euro foreign exchangerate," Praet told reporters after a speech at the BavarianEconomic Club.

However, he added that the ECB looked at foreign exchangerates as part of its regular inflation assessment.

"We look at all elements that could push inflation evenlower," he said, adding that foreign exchange rate was one ofthose factors.

Turning to the U.S. budget situation, where even sovereigndebt default has been brought into play, he said that thesituation was worrying but had not had any impact on the ECB'sactions.

"I don't see for the time being any impact from the U.S. onour monetary policy ... it's marginal and we hope it will besettled."

Praet added that he was confident that a solution would befound. But he also repeated ECB President Mario Draghi's words,saying that if no solution is found, it would have catastrophicconsequences.

"We are always ready for all situations," Praet added. "Wewill react if necessary," and would act to ensure that inflationin the euro zone does not veer too far from the target of justbelow 2 percent.

Praet said that the ECB sees subdued price pressures. "Thatextends into the medium term - this means also 2015," he said,but added that the ECB would not provide an exact estimatebefore the next round of staff projections is published inDecember.

Asked whether the ECB could provide more long-term loans forbanks, he repeated that that was one of the options, but saidthat the ECB would make sure they chose the right option, ifany.

"Before we activate them, we want to be sure that we addressthe right problem."

Praet added that it was not easy to link providing long-termloans to bank lending. At the same time, the ECB was lookinginto the "cliff effect" when the loans expire in early 2015,Praet said.

The ECB provided commercial banks more than 1 trillion eurosin three-year loans in late 2011 and early 2012. More than athird of that has been paid back early, but banks especially inperipheral countries have hung onto the loans and could face aliquidity crunch when the loans expire.

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