- IMF: Undershooting of Eurozone's inflation objective calls for prolonged monetary accommodation
Market news
11 July 2019
IMF: Undershooting of Eurozone's inflation objective calls for prolonged monetary accommodation
- Eurozone may face the long period of anemic growth and inflation
- Projects GDP growth of 1.3% and inflation at 1.3% 2019
- Sees rising risks for Eurozone economy, especially trade tensions, impact of Brexit, Italy's debt woes
- EUROs real exchange rate as slightly undervalued, urges Germany, other trade surplus states to invest more
- ECB's intention to maintain ample accommodation for longer is vital
- ECB should short maturity of new TLTROs, offer less generous pricing terms than on TLTRO II to avoid banks increasing their sovereign exposure
- Says possible tiered deposit rate would have very small impact on aggregate bank profitability and questionable impact on credit conditions
- direct costs of negative rates are likely to outweigh by their positive indirect effects on aggregate demand and bank profitability
- if further accommodation required, ECB should consider new asset purchase program anchored by P and possibly broaden to larger set of assets
- ECB may have only limited room to cut interest rates
- further credit easing measures could be considered, including new cheaper liquidity facilities for banks
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