The European Central Bank should cut its basic interest rate further to help growth in the struggling eurozone, the International Monetary Fund said in a paper released Thursday. While governments are cutting spending to reduce deficits, the impact of that to slow growth could be offset by lower rates and other possible moves from the ECB, the IMF said.
"The ECB's monetary policy should be highly accommodative, consistent with its mandate of ensuring price stability. This could be achieved by lowering the target policy rate, for which room exists, and, as needed, further unconventional measures." After pushing up its key interest rate early last year to forestall a feared pickup in inflation, the ECB began cutting the rate in November, to 1.25 percent from 1.5 percent, and lowered it another quarter-point to 1.0 percent in December. But it remains well above the US Federal Reserve's floor-level rate of 0-0.25 percent, which in more than three years of slow growth has not sparked inflation.
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