Jan. 21 (Bloomberg) -- European Central Bank council member Nout Wellink said an interest rate cut wouldn't halt the euro's gains against the dollar and he sees no need for finance ministers from the Group of Seven countries to act on exchange rates. In foreign exchange markets, ``the forces at work are much stronger and can't be neutralized by a minor change in rates. This is not the instrument,'' Wellink said in an interview at the Dutch central bank in Amsterdam, which he heads. ``There is no need to take special measures'' when finance ministers from the G-7 countries meet in Florida next month, Wellink also said. ``At this very moment, there is not an extraordinary situation that we should address.''
Concern the euro's appreciation may undermine an export-led recovery prompted politicians including German Economics and Labor Minister Wolfgang Clement to urge a cut in interest rates. Such a move, they say, would slow the currency's gains and help European companies deal with the impact of the euro on their exports. Exports account for about a fifth of Europe's economy. Wellink's remarks echo comments by Bundesbank council member Edgar Meister, who said in a separate interview with Bloomberg News that he sees no need for the ECB to sell the currency or cut rates to slow its appreciation. The euro had its biggest advance against the dollar in two months yesterday after European finance ministers ended a meeting with ``no view'' on how to stem gains in the currency that risk hurting the economy.
`Important'
The euro rose to $1.2660 at 10:58 a.m. in Frankfurt, from $1.2581 in New York yesterday. It had dropped more than 5 cents from a record $1.2899 on Jan. 12, after ECB policy makers including President Jean-Claude Trichet and Chief Economist Otmar Issing voiced concern about the pace of the euro's appreciation. Wellink said it was ``important'' that the euro didn't gain further after Trichet's statement, which was made at a meeting of Group of 10 central bankers in Basel earlier this month. Still, he said, the euro's appreciation so far hasn't been ``excessive'' and won't stop the region's recovery.
The euro's 17 percent appreciation against the dollar since the start of September ``is on the high side, but my feeling is it's not excessive,'' Wellink said. Trichet's statement that the ECB is concerned about `` brutal moves'' in the exchange rate was ``a general remark. The statement was not that there is, at this very moment, excessive volatility in the market,'' Wellink said. The ECB on Jan. 8 left its benchmark lending rate at 2 percent, the lowest in any euro country since at least 1946. The rate is still twice as high as the U.S. Federal Reserve's main rate, making the euro-denominated investments more attractive.
No Long-Term Impact
The euro's appreciation ``makes life for exporters a little bit more difficult,'' Wellink said. Still, ``in the somewhat longer term -- a period of one to two years -- the impact on GDP growth is more or less zero,'' provided the euro rises at a pace slow enough to allow companies to adjust. ``So I would not give in to the desire of that minister in Germany,'' he said, referring to Clement. ``Rates are really low enough.'' Investors have scaled back expectations the ECB may raise rates any time soon, as the euro's appreciation threatens to slow export growth and helps keep inflation in check. The yield on the three-month Euribor futures contract for June settlement dropped to 2.07 percent in Frankfurt, from 2.38 percent two months ago. The money market rate is 2.08 percent.
ECB policy makers may be reluctant to sell euros to slow the currency's gain as long as other countries aren't willing to support it. Bank of Japan Governor Toshihiko Fukui has said the dollar's drop is ``a U.S. problem, not ours.'' Fed Chairman Alan Greenspan said the U.S. is able to fund its current account deficit with few consequences for the global financial system. Asked if the U.S. or Japan signaled support for Europe at the G-10 central bankers meeting, Wellink said ``we are not in a situation where we need support.'' Greenspan's assessment is ``right,'' he said. ``It is still an orderly adjustment process. And it shouldn't become a disorderly process.''//www.bloomberg.com