“In monetary policy, we (the ECB) don’t have the exchange rate as a target,” Constancio said in an interview with Portugal’s SIC television, which was made available to Reuters before going on air later on Thursday.

Constancio was speaking as the euro set another record high against the dollar on Thursday, prompting Europe’s leading employer lobby to push for international talks to stabilize foreign exchange markets. But Constancio, who is also governor of the Bank of Portugal, said the effective exchange rate of the euro had risen much less than it has against just the dollar. “What is important is the exchange rate of the euro against a basket of currencies that trade with the euro zone – the effective rate and not the bilateral rate against the dollar,” he said. “The effective exchange rate of the euro has appreciated much less than against the dollar.” He added, however, that calm foreign exchange markets were desirable. “When the movements are excessive and abrupt it is not desirable,” he said.

The European Central Bank has held interest rates steady as the US Federal Reserve has slashed monetary policy in the face of a sharp economic downturn after the subprime crisis erupted last year. The ECB is juggling high inflation against the possibility of the US slowdown sharply cutting European growth. The ECB has forecast euro-zone growth to slow this year to between 1.7% and 1.8%, compared with 2.2% in 2007. Constancio also noted inflation had risen in Europe, adding: “It is a worrying factor.” “The truth is that the inflation risks have risen and, after all, Europe’s growth situation is not as depressed as in the United States,” he said. The outlook for interest rates would depend on economic developments and inflation. “The future evolution (of rates) depends on the evolution of the economy and the risks to inflation,” he said. Constancio said that a strengthening of the euro exchange rate, if it is maintained, was “equivalent to an interest rate rise.” (Reuters)