OECD chief economist sees deflation risk in Europe

by Reuters
Wednesday, 22 January 2014 08:49 GMT

VIENNA, Jan 22 (Reuters) - The European Central Bank should be ready to take measures including quantitative easing to ward off the danger of deflation in Europe, the OECD's chief economist said.

"There is a deflation risk, but I don't know how large it is," Pier Carlo Padoan of the Organisation for Economic Co-operation and Development told Austria's Der Standard newspaper in an interview published on Wednesday.

The International Monetary Fund also warned of deflation risks in an update to its World Economic Report on Monday, saying its models showed a 10 to 20 percent chance that prices could start to fall in the euro currency bloc.

Inflation in the euro zone was just 0.8 percent year-on-year in December, well below the ECB's target of close to but below 2 percent.

Padoan said the ECB should be prepared to cut deposit rates below zero, and added: "New measures should also be taken. These include a European form of quantitative easing. By this I mean massive interventions on secondary markets."

"One could also consider an extension of (the bank's) mandate to intervene in primary markets, like the Fed and other central banks are doing."

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