Tags: IMF | ECB | Fed | Inflation

IMF: ECB Should Copy Fed's Game Plan if Inflation Stays Low

Thursday, 19 Jun 2014 07:30 PM

The European Central Bank would need to move to full-scale quantitative easing if inflation in the eurozone remains in the doldrums, the International Monetary Fund said.

“If inflation remains stubbornly low, the ECB should consider a large-scale asset purchase program,” the Washington-based IMF said in an assessment of the euro-area economy. “This would boost confidence, improve corporate and household balance sheets and stimulate bank lending.”

Speaking to reporters in Luxembourg after making the recommendations to euro finance ministers, IMF Managing Director Christine Lagarde said inflation’s resistance to the ECB’s latest measures would represent the “stubbornness” that triggers quantitative easing.

The central bank stopped short of quantitative easing when it announced unprecedented stimulus measures on June 5, cutting interest rates to all-time lows and prodding commercial banks to increase lending. It became the first major central bank to experiment with negative rates, putting the deposit rate at minus 0.10 percent.

“The recovery is neither robust nor sufficiently strong,” the IMF said.

The IMF gave a bleak assessment of an 18-nation economy still shaking off the debt crisis, noting that output is still below pre-crisis levels, inflation at 0.5 percent in May “worryingly low” and unemployment at 11.7 percent in April “unacceptably high.”

Progress toward a euro banking union got mixed reviews. While bank supervision will be anchored with the ECB and a system for resolving failing banks has been streamlined, “the current planned backstop may prove insufficient to break decisively bank-sovereign links,” the IMF said.

New rules on deficits, debt and economic imbalances include many “positive elements,” the IMF said, while criticizing them as “excessively complicated with multiple objectives and targets.”

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The European Central Bank would need to move to full-scale quantitative easing if inflation in the eurozone remains in the doldrums, the International Monetary Fund said.
IMF, ECB, Fed, Inflation
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2014-30-19
Thursday, 19 Jun 2014 07:30 PM
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