There are signs that the European Central Bank's quantitative easing programme is producing results and the bank needs to keep its foot on the stimulus pedal, departing Central Bank Governor Patrick Honohan said today.
Speculation of further easing from the ECB at its next policy meeting in December has grown since President Mario Draghi indicated in October that the Governing Council would act if needed to drive up inflation towards its near-2% target.
This is a view echoed by several other policymakers.
Alternatives open to boost a virtually stagnant euro zone economy include snapping up the bonds of towns and regions or introducing a two-tier penalty charge on banks that park money with the ECB.
"I think we can see results, not a huge bounce back to a 2% inflation rate, but I think if we didn't have it we would be looking at a worse situation," Honohan said.
Today is his last day as Central Bank Governor before retiring.
"Even though there are signs of a better recovery, inflation forecasts are still not moving up and therefore definitely they need to keep the foot on the accommodation pedal," he said.
After inflation of just 0.1% last month, a Reuters poll of economists today suggested the ECB will ease policy in some way or other on December 3.
ECB chief Mario Draghi must find a compromise that will win the blessing of a majority of the 19 central bank heads around the euro zone, and Honohan said it had been "very difficult" for the bank to set up its initial round of money-printing.
Professor Honohan, who will be succeeded by fellow economics professor Philip Lane, said he was firmly in favour of the initial move.
The ECB has been buying around €60 billion of assets a month since March, a programme scheduled to run until next September.