FRANKFURT (Reuters) - Bundesbank chief Jens Weidmann warned on Monday against taking too one-dimensional a view of the euro's strength, stressing the importance of the stimulative effect of lower sovereign bond yields in the euro zone.
Investors' renewed appetite for euro zone sovereign bonds could contribute to an appreciation of the euro but the lower yields should have an expansionary effect on financing over the medium term, Weidmann added.
"It would therefore be too short-sighted only to take a one-dimensional view of the exchange rate and to leave out the stimulating effects of lower sovereign bond yields," he said in the text of a speech for delivery at a finance conference.
The comments from Weidmann, who leads the hawkish camp on the ECB Governing Council, come as the central bank's policymakers prepare for a June 5 meeting at which they are widely expected to loosen monetary policy.
ECB President Mario Draghi said last week the Governing Council was "comfortable with acting next time" - its June 5 policy meeting - but wanted to see updated economic projections from the bank's staff first.
Last week, Reuters reported that the ECB is preparing a package of policy options for the June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.
Weidmann said ECB policymakers will watch the euro's exchange rate closely before taking policy decisions, adding that a period of low inflation was likely to persist for some time in the euro zone.
"With monetary policy decisions, the European Central Governing Council will therefore watch further exchange rate developments very closely," he said.
The ECB has faced pressure from the French government to change monetary policy course to bring down the euro. Weidmann, referring to demands for the ECB to tackle the euro's exchange rate, said: "In order to strength growth and employment in the euro zone over time, member states must deliver competitive economic structures."
(Writing by Paul Carrel; Editing by John Stonestreet)