The European Central Bank must consider buying government and corporate bonds to help the euro zone avoid a Japanese-style deflationary spiral, the OECD said on Tuesday.
It was a direct call for the ECB to undertake quantitative easing (QE), a policy that currently divides the bank, in the face of what the think-tank said was a risk of deflation.
Inflation in the 17-nation euro zone fell to its lowest in nearly four years in October, with the economy struggling to recover strongly after emerging from its longest ever recession.
Despite a surprise ECB rate cut this month, the Organization for Economic Co-operation and Development said in its latest economic outlook that the bank needs to take bolder measures at a time of massive unemployment and difficult credit.
"Risks of deflation may be slowly increasing," OECD chief economist Pier Carlo Padoan told Reuters. "The ECB must be very careful and be prepared to use even non-conventional measures to beat any risk of deflation becoming permanent," he said.
Under its statutes, the ECB is banned from buying bonds directly from governments but can find ways to purchase them from banks, for example, on the secondary market or accept them as security in return for finance.
Source: Reuters
