PARIS - THE European Central Bank will slash its main interest rate to 2.0 per cent in early 2009 and could go even farther if the situation worsens, the OECD forecast on Tuesday.
'With inflationary pressures already easing, there is scope for additional monetary stimulus, which should be prompt to minimise the downside risks to activity,' the OECD said.
The Organisation for Economic Cooperation and Development (OECD) forecast in its biannual Economic Outlook that the ECB would cut its main rate from 3.25 percent currently to 2.0 per cent 'by next spring, and remain at that level for a year.' However, if the financial or economic situation turned more dire than expected, then 'deeper interest rate reductions could prove necessary in the near term,' it said.
The OECD estimated that inflation would fall in line and even below the ECB's comfort zone, which it defines as a rate of less than but close to 2.0 per cent.
It forecast that inflation would fall from 3.4 per cent this year to 1.4 per cent in 2009 and 1.3 per cent in 2010 although the rate would reach as low as 1.0 per cent in the third quarter of 2009. -- AFP
