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IMF calls for ECB efforts to tackle “low-flation”

March 31, 2014

By Marc Jones, Huw Jones and Mark Heinrich

LONDON (Reuters) – The European Central Bank has more room to cut interest rates, the International Monetary Fund’s top European official said on Monday, warning the euro zone faced the biggest pressure from slowing inflation.

Official figures on Monday showed euro zone inflation slowing to just 0.5 percent, well below the ECB’s preferred level of just under 2 percent.

“We are not so much worried about deflation by itself, but we are very worried about what we call ‘low-flation’,” Reza Moghadam, Director of the IMF’s European Department, said at London’s City Week conference.

“There is more room for further (ECB) easing, not least because inflation is under control.”

Growth in Europe is projected this year and next year to be in the 1-1.5 percent range, he said.

“The downward pressure on inflation will continue to be there and the need for supporting policies, whether macro or fiscal policies, will continue to be there,” Moghadam said.

“The euro is very strong and that is weighing on competitiveness. Within Europe there is huge divergence on competitiveness and that is one of the challenges of keeping the euro together.”

The combination of high debt and low inflation in several European countries was also making it difficult to adjust debt levels and adjust “very sticky nominal wages”, he said.

(Reporting by Marc Jones and Huw Jones, editing by Mark Heinrich)

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