BRUSSELS, March 5 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 on
Thursday. Consumer inflation, which the bank wants to keep
below, but close to 2 percent over the medium term, has been
stuck in what the ECB called the danger zone of below 1 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.
The blog ()
was co-authored by his deputy Ranjit Teja and senior economist
"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.
"The ECB must be sure that policies are equal to the tasks
of reversing the downward drift in inflation and forestalling
the risk of a slide into deflation," they said.
"It should thus consider further cuts in the policy rate
and, more importantly, look for ways to substantially increase
its balance sheet, be it through targeted LTROs or quantitative
easing (public and private asset purchases)," the blog said.
On Monday, IMF chief Christine Lagarde said the fund saw a
risk of an extended period of low inflation in the euro zone and
that central bankers must be ready to act so that it does not
derail an incipient recovery.