ISTANBUL (Reuters) - Central banks still have room to cut interest rates and deflation is not a major risk, the Organization for Economic Co-operation and Development Secretary General Angel Gurria said on Monday.
“Inflation is dropping very fast ... so there is space to relax monetary policy and to move interest rates lower. Of course each economic area — the United States, Japan and Europe — we have a different capacity (to do so),” he told Reuters.
The Paris-based OECD, in a report last month, called on central banks to play close attention to the risk of deflation.
“We cannot rule it (deflation) out but we do not see it,” Gurria said during a two-day visit to Turkey.
“What we see is a reduction in inflation pressures, in some cases very flat price behavior, some commodities, a few products, may have negative price evolution but we don’t see price deflation as a generalized thing happening but we should be aware and keep our guard,” he said.
Gurria said he expected the OECD 30-member economies to shrink by 0.5 to 1 percent on average in 2009 but bounce back to growth of around 2 percent in 2010.
“Negative in 2009 and recovery in 2010, provided there is coordination among the countries,” he said.
Last month the OECD said it expected real gross domestic product to shrink in the 30-country OECD area by 0.4 percent but rise by 1.5 percent in 2010.
Editing by Toby Chopra