The European Central Bank may need to consider another interest rate cut if the euro continues to strengthen and begins to weigh on inflation, Austrian central bank governor Martin Kocher said in an interview with the Financial Times published on Wednesday.
Kocher, who sits on the ECB’s governing council, said the recent rise in the euro against the U.S. dollar had so far been modest and did not currently justify a change in monetary policy.
However, he warned that sustained appreciation could eventually push down import prices and alter the central bank’s inflation outlook.
“If the euro keeps appreciating, at some point this could create a need to react in monetary policy,” Kocher said. He stressed that any response would not be aimed at the exchange rate itself, but at the impact of currency strength on inflation.
The euro climbed to a more than four-year high of $1.199 on Tuesday, extending gains as the dollar weakened amid investor concerns over U.S. policy uncertainty and ongoing geopolitical tensions.
Markets have also been monitoring speculation about potential coordinated action by the United States and Japan to support the yen, which has added to broader currency volatility.
Kocher said a stronger euro could reduce import prices but may also hurt the euro zone’s competitiveness, particularly relative to U.S. companies. He added that China’s yuan remains “structurally undervalued” against the euro.
The Austrian policymaker declined to name any specific exchange-rate level that would trigger concern, reiterating that the ECB does not target currency values. “It would not be serious to set a target for the exchange rate — our target is inflation,” he said.
Kocher also cautioned that trade-related risks remain elevated, despite U.S. President Donald Trump stepping back last week from plans to impose tariffs on European countries amid tensions linked to Greenland.
He said trade risks are likely to remain a persistent source of uncertainty for the foreseeable future.
Still, Kocher noted that the euro zone economy has shown more resilience than expected and said he is cautiously optimistic about growth this year. He added that risks now appear more balanced compared with spring 2025, when the Trump administration announced sweeping tariff measures.
Potential upside risks include stronger household spending if savings rates decline, while downside risks stem from trade disputes, geopolitical developments, and the possibility of a correction in equity markets.
For now, Kocher said there is no need to adjust interest rates ahead of the ECB’s meeting next week. The central bank is widely expected to keep rates unchanged at 2% for a fifth consecutive meeting.
“At the moment, it makes complete sense to preserve full flexibility in monetary policy decisions, given the high level of uncertainty,” he said.
