The International Monetary Fund (IMF) has warned of the risks of low inflation and called for the European Central Bank (ECB) to help strengthen the region’s economy ahead its policy decision on Thursday.
The IMF blog, written by economists led by Reza Moghadam, director of the fund’s European Department, says that Europe “can have too much of a good thing, including low inflation.”
It comes despite better-than-expected euro zone inflation data, which came at 0.8 percent in February – welcome news for the ECB, as previous figures had fueled concerns about growth-sapping deflation.
“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,” Moghadam wrote.
“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 (long-term refinancing operations) or quantitative easing (public and private asset purchases).”
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