BRUSSELS: The European Central Bank should cut interest rates and either inject more liquidity into the banking system via its Long-Term Refinancing Operations (LTRO) or start public and private asset purchases, International Monetary Fund officials said.
The ECB is due to hold a meeting on monetary policy today. Consumer inflation, which the bank wants to keep below, but close to two percent over the medium term, has been stuck in what the ECB called the danger zone of below one percent for five months.
“You can have too much of a good thing, including low inflation,” Reza Moghadam, the head of the IMF’s European Department said in a blog. It was co-authoured by his deputy Ranjit Teja and senior economist Pelin Berkmen. “Very low inflation may benefit important segments of the population, notably net savers. But in the current context of widespread indebtedness problems, it is working to the detriment of recovery in the euro area, especially in the more fragile countries, where it is thwarting efforts to reduce debt, regain competitiveness and tackle unemployment,” they said in the blog.
IMF chief Christine Lagarde said the fund saw a risk of an extended period of low inflation in the eurozone. Reuters
