You are here

IMF urges ECB to expand QE if inflation doesn't revive

[BRUSSELS] The International Monetary Fund urged the European Central Bank to consider expanding its asset-purchase program if inflation in the euro area doesn't rise from current low levels.

"Given the very weak outlook for inflation, the ECB should stand ready to ease further if inflation remains below its anticipated adjustment path," IMF staff said on Friday in an Article IV report on the euro area. "Dis-inflationary pressures remain strong with 11 countries reporting negative inflation in May" and "with second-round effects weighing on core inflation."

Under the guidance of the ECB, central banks in the euro area are currently spending US$89 billion a month, the vast majority on sovereign bonds, to drive up an inflation rate that hasn't reached the institution's goal of just under 2 per cent for more than three years. Officials currently predict consumer-price growth will accelerate to 1.6 per cent in 2018 from 0.2 per cent this year.

Even as the 19-nation economy enters its 14th quarter of expansion, unemployment is still above 10 per cent at a time when the UK vote to leave the European Union risks damaging the recovery.

"Downside risks have grown," the IMF said. "External demand could weaken, while political risks have risen significantly, particularly related" to the situation in the U.K.