IMF Urges ECB Action To Avoid Deflation

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).”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza