Low inflation could damage European growth: IMF chief

Friday 18 July 2014 14.51
Ms Lagarde said that "European economies are beginning to emerge from the crisis"
Ms Lagarde said that "European economies are beginning to emerge from the crisis"

IMF chief Christine Lagarde warned that low inflation could damage growth in Europe and urged the European Central Bank to maintain a flexible policy.

"Obstinately low inflation can seriously undermine growth," said Ms Lagarde, who recently hinted that the 3.6% global growth forecast for 2014 may have to be trimmed.

But the "good news," Ms Lagarde said, was that "European economies are beginning to emerge from the crisis."

"We are seeing this in a certain number of indicators. We are also seeing this in the very positive orientation of markets, perhaps a little too positive in respect to fundamentals," Ms Lagarde said in a speech at the Robert Schuman Foundation in Paris. 

Ms Lagarde did not specify which European markets were overly optimistic.

"Monetary policy should remain supportive until private demand has fully recovered" and the European Central Bank "has achieved its price stability objective," she said.

Last month the European Central Bank cut its key interest rates, including taking one into negative territory for the first time, in a bid to help the region's stalling economy emerge from the euro zone debt crisis.

Earlier this month, Ms Lagarde had asked governments to boost public investment and help drive the global recovery.