Economists from the International Monetary Fund have urged the European Central Bank to concentrate on asset purchases rather than cutting its already negative interest rates again, if it needs to stimulate the euro zone economy again.
A blog published on the Fund's website said the ECB had "limited room for further substantial rate cuts without hurting the profitability of banks", which in turn might have negative knock-on effects.
"Additional rate cuts could weaken the effectiveness of monetary policy if lending rates fail to adjust or customers withdraw cash from banks."
Instead, it said: "focusing on asset purchases would raise asset prices and aggregate demand, while also supporting bank lending. This would also facilitate the pass-through of improved bank funding conditions to the real economy."
The paper, which carried the caveat that it represents only the view of its authors - Andy Jobst and Huidan Lin, both economists in the IMF's European Department - added that negative rates had been successful in pushing down borrowing costs as well as supporting the ECB's programme to buy more than 1.5 trillion euros of bonds. (Reuters)
Source: www.businessworld.ie
