The European Central Bank should ease monetary policy further if inflation does not begin rising as expected, and governments should find ways to snuff out non-performing bank loans to help economies reap the full benefits of ECB stimulus, the OECD said on Friday.
As Britain gets closer to a vote on June 23 on its EU membership, the Paris-based Organisation for Economic Cooperation and Development estimated that Brexit would knock one percent off of EU gross domestic product in 2018. In in-depth reports on the euro zone and European Union, the OECD said any negative economic shocks would provide grounds for further ECB easing to keep inflation on track toward its target of just under 2 percent.
Boosted by its asset purchase program and ultra-low interest rates, the ECB currently expects inflation to rebound to 1.2 percent next year from only 0.2 percent this year. However, the OECD said the weakness of some banks’ balance sheets, concentrated mostly in Greece and Italy, was preventing the benefits of loose ECB monetary policy from spreading to firms and consumers.
The ECB eased in March and is now focused on the implementation of newest measures. The market isn’t pricing further cuts from the Central Bank, but situation may change quickly if the UK votes to leave the UE.
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