IMF Sees ECB Focus on More Asset Buying as Rate Cuts Near Limit
- Further reductions could hurt bank profits and so curb lending
- ECB should rely more on QE program to raise prices and demand
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The European Central Bank may need to rely more on asset purchases for monetary stimulus as its negative interest rates approach the limit of their effectiveness, economists at the International Monetary Fund said.
While negative rates in the euro area have successfully eased financial conditions for banks and their customers -- spurring a modest credit expansion that supports growth and inflation -- they also squeeze bank profitability, Andy Jobst and Huidan Lin wrote in a blog post published on Wednesday. That risks reducing banks’ capacity to lend.