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ECB's Praet says euro fx rate within normal range


By Jens Hack and Sakari Suoninen

MUNICH, Oct 15 (Reuters) - The euro is trading within a relatively normal band in foreign exchange markets at the moment, European Central Bank Executive Board member Peter Praet said on Tuesday, indicating it is not a great worry for the central bank.

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

"We are in a relative normal range in euro foreign exchange rate," Praet told reporters after a speech at the Bavarian Economic Club.

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

"We look at all elements that could push inflation even lower," he said, adding that foreign exchange rate was one of those factors.

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

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

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

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

Praet said that the ECB sees subdued price pressures. "That extends into the medium term - this means also 2015," he said, but added that the ECB would not provide an exact estimate before the next round of staff projections is published in December.

Asked whether the ECB could provide more long-term loans for banks, he repeated that that was one of the options, but said that the ECB would make sure they chose the right option, if any.

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

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

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