ECB should maintain stimulus, calls for end are ‘premature’, says IMF

International Monetary Fund. (Photo: Reuters)

The European Central Bank (ECB) should maintain a “firmly accommodative” monetary policy for an “extended period”, the International Monetary Fund (IMF) said on Tuesday, as it forecast inflation remaining below target.

As the ECB prepares for a decision in autumn on whether to claw back its stimulus programme, the IMF said calls for an exit from easy-money policy were “premature” because consumer prices were not increasing enough.

In its annual report on the euro zone, the IMF estimated euro zone inflation will reach 1.6 percent this year before slowing to 1.5 percent in 2018, below the ECB target of below but close to 2 percent.

The forecasts were actually stronger than the ECB’s latest one, released in June, which predicted the bloc’s inflation rate at 1.5 percent this year and 1.3 percent in 2018.

“The costs of a long period of inflation undershooting continue to exceed those of a temporary overshoot,” the IMF said.

“The calls from some quarters for an exit from monetary accommodation are therefore premature,” it added. Germany has been the biggest critic of ECB’s 2.3 trillion euro ($2.7 trillion) money-printing programme.

To help a sustained recovery of inflation, the IMF encouraged Germany and other euro zone’s countries with high growth to push for “robust” wage and price rises, even if this could bring domestic inflation beyond the 2 percent limit for a limited period.

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