European Central Bank Comes Under Pressure from IMF to Use Quantitative Easing
The European Central Bank (ECB) has been urged to introduce a full-scale quantitative easing (QE) programme in an effort to prevent the Eurozone sliding into deflation.
This is the key recommendation in the latest assessment of the region's economy produced by the International Monetary Fund
'If inflation remains stubbornly low, the ECB should consider a large-scale asset purchase programme,' the organisation stated, adding: 'This would boost confidence, improve corporate and household balance sheets and stimulate bank lending.'
After making the recommendations directly to European finance ministers yesterday, IMF Managing Director Christine Lagarde then addressed reporters in a news conference in Luxembourg and suggested any 'stubbornness' demonstrated in the inflation rate after the recent stimulus measures announced by the bank should trigger QE.
On 5 June, the ECB refrained from introducing an asset purchasing scheme, but cut interest rates to record lows and unveiled an initiative designed to increase lending to small businesses from commercial banks.
In addition, it also became the first of its major central bank peers to experiment with negative rates, slashing its deposit rate to -0.1%.
ECB policymakers took action after official data showed consumer prices across the Eurozone increased by just 0.5% year on year in May, down from growth of 0.7% in the previous month.
This was the eighth consecutive month in which the rate was less than half the bank's 2% target.
According to the IMF, the 18-nation bloc will struggle to turn this situation around as output remains well below the levels recorded prior to the global financial crisis of 2008 and unemployment is 'unacceptably high' at 11.7%.
ECB executive board member Benoit Coeure said there is 'no disagreement with the IMF', acknowledging policymakers' willingness to introduce a QE programme if the inflation outlook worsens, but insisted such action 'is not needed today'.
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By Jonathan Sudaria, 20 June 2014