In an interview with the Financial Times published on Wednesday, Austrian central bank governor Martin Kocher said the European Central Bank may find it necessary to contemplate another interest rate cut if further gains in the euro begin to weigh on inflation.
Kocher, who sits on the ECB's governing council, characterized the currency's recent advance against the dollar as "modest" and said it did not presently require a response from monetary policymakers. At the same time, he warned that sustained appreciation could feed through into lower import prices and alter the ECB's inflation trajectory.
"If the euro appreciates further and further, at some stage this might create of course a certain necessity to react in terms of monetary policy," Kocher said. "But not because of the exchange rate itself, but because the exchange rate translates into less 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 risks and geopolitical tensions. Market participants have also monitored speculation about possible coordinated action by the United States and Japan to support the yen.
Kocher noted that a stronger euro could reduce import prices while also weighing on the competitiveness of euro-zone producers, particularly relative to U.S. firms. He further described the Chinese yuan as "structurally undervalued" versus the euro.
When asked whether there was a specific exchange-rate level that would prompt action, Kocher declined to set a threshold, underscoring that the ECB does not target exchange rates. "It would not be serious to have a target on the exchange rate - the target is on the inflation rate," he said.
The Austrian policymaker signaled 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. "Trade-related risks remain on the table and are likely to do so for the foreseeable future," he said.
Despite those risks, Kocher said the euro-zone economy has been more resilient than anticipated and described himself as "cautiously optimistic" about growth prospects for the year. He assessed that risks to the outlook were more balanced than in the spring of 2025, when the Trump administration announced sweeping tariff measures.
Kocher identified potential upside and downside drivers for the euro-zone economy. On the upside, he pointed to the possibility of stronger household spending if savings rates declined. On the downside, he flagged trade tensions, geopolitical developments and a potential correction in equity markets as risks that could weigh on growth.
Looking ahead to the ECB's policy calendar, Kocher said there was no need to change interest rates before the central bank's February meeting next week. The ECB is widely expected to leave the policy rate unchanged at 2% for a fifth straight meeting.
"It makes absolute sense at the moment to keep full optionality of monetary policy decisions: the situation is uncertain," Kocher said, emphasizing that preserving flexibility remains the appropriate stance given the uncertain economic backdrop.