ECB may cut rates if euro rises further, Austrian central banker says

Austrian central bank governor Martin Kocher, who is also a member of the European Central Bank’s (ECB) Governing Council, has indicated that the ECB could consider adjusting monetary policy if the euro continues to strengthen significantly against the US dollar.

Kocher said that the recent rise in the euro has been relatively modest and does not currently justify any policy action. However, he warned that further appreciation could start affecting inflation dynamics in the euro zone.

“If the euro keeps appreciating over time, it may eventually create the need for a monetary policy response,” Kocher said in an interview with the Financial Times. He clarified that the ECB would not react to the exchange rate itself, but rather to its impact on inflation, as a stronger currency tends to reduce import prices.

Euro Hits Multi-Year High

The euro recently climbed to above $1.19, marking its highest level in more than four years. The rally has been driven largely by weakness in the US dollar, as investors remain concerned about US policy uncertainty and rising geopolitical tensions.

Markets are also closely watching speculation around possible coordinated intervention by the United States and Japan to support the Japanese yen, which has added further pressure on the dollar.

Impact on Inflation and Competitiveness

Kocher explained that a stronger euro could lead to lower import costs, which may push inflation below the ECB’s target. At the same time, it could hurt the euro zone’s competitiveness, especially for exporters competing with US companies. He also noted that the Chinese yuan remains structurally undervalued compared to the euro.

Despite these concerns, Kocher stressed that the ECB does not target exchange rates. “It would not be credible to set a currency target,” he said, adding that the ECB’s sole objective remains maintaining price stability.

Trade Risks Still Present

Kocher also cautioned that trade-related risks remain high, even though US President Donald Trump recently stepped back from imposing tariffs on European countries amid tensions over Greenland.

According to him, trade uncertainty is likely to persist for the foreseeable future and continues to pose risks to the euro zone economy.

Euro Zone Outlook Remains Resilient

Despite global uncertainties, Kocher said the euro area economy has shown greater resilience than expected. He expressed cautious optimism about economic growth in 2026, noting that risks are now more balanced compared to early 2025, when the US administration announced broad tariff measures.

Potential upside risks include stronger consumer spending if households reduce savings, while downside risks include trade tensions, geopolitical developments, and a possible correction in equity markets.

ECB Rates Likely to Stay on Hold

For now, Kocher said there is no need to change interest rates ahead of the ECB’s policy meeting next week. The ECB is widely expected to keep interest rates unchanged at 2%, marking the fifth consecutive meeting with no rate move.

Given the uncertain global environment, Kocher said it makes sense for the ECB to maintain flexibility. “The situation remains uncertain, so keeping full optionality in monetary policy decisions is the right approach,” he said.