EUROPEAN Central Bank President Mario Draghi pledged yesterday to keep a close eye on the economic impact of the rise of the euro.

Draghi said the recent rise of the euro was a sign of rising confidence in the region but he acknowledged that it could weaken economic growth.

Over recent months, the euro has risen from around the US$1.20 mark to trade more than US$1.35 even though a number of the 17 countries that use the currency have sunk back into recession.

A rising exchange rate could have a major impact on the eurozone economy. It could raise the price of exports, unappetizing news for many of the region's hard-pressed businesses. That prospect of lower activity could also weigh on prices - as would the lower import costs that the high euro would likely engender.

Several European leaders, notably French President Francois Hollande, have already started to voice their concern. And without explicitly addressing those fears, Draghi indicated there could be a policy response.

"The exchange rate is not a policy target but it is important for growth and price stability," Draghi said in a press briefing after the bank kept its main interest rate flat at the record low of 0.75 percent.

"We will want to see if the appreciation will alter our assessment as far as price stability is concerned," he added. "We will closely monitor money market developments."