Brussels: Martins Kazaks, a member of the European Central Bank’s Governing Council, has issued a warning that a sharp and rapid appreciation of the euro could present challenges necessitating a potential monetary policy response.

According to National Iraqi News Agency, Kazaks, in a post published on Friday, stated that while the ECB does not target a specific exchange rate for the euro, a sustained and significant strengthening of the currency could lead to a decrease in inflation expectations across the euro area. He elaborated that a stronger euro would lower import costs, alleviate price pressures, and curb imported inflation, while also limiting the ability of companies to pass on price increases amidst weakening demand.

Kazaks further cautioned that the strengthening of the euro might negatively impact economic activity by reducing the competitiveness of European exports, as euro-area products would become more expensive in global markets. This could lead to diminished external demand, decreased industrial output, and increased pressure on corporate profits, investment, and employment.

He also noted that the euro’s exchange rate against the US dollar has remained relatively stable in recent months, with the last significant rise occurring in the second quarter of 2025, which appears to be ongoing. Kazaks mentioned that the full impact of the euro’s appreciation on inflation could become more evident by next spring, although these effects have already been incorporated into the ECB’s baseline projections.

On the previous day, the European Central Bank decided to keep interest rates unchanged, maintaining the deposit rate at 2%, aligning with expectations and signaling the continuation of its current monetary policy stance.