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(CEP News) Frankfurt - With economic growth in the euro zone likely to remain weak until the middle of next year, the Organisation for Economic Co-operation and Development (OECD) said that the European Central Bank has room to cut its main refinancing rate further in the months ahead. Currently, the main rate stands at 2.5%.
The main rate currently stands at 2.5%. "There's certainly more scope for monetary easing", OECD economist Nigel Pain said in an interview with Reuters. In a report published on Wednesday, the OECD maintained its forecasts pointing to a 0.6% contraction in GDP over 2009. However, Pain stressed that downside risks to this forecast were growing. Conversely, the organization also said that the ECB should be prepared to hike rates again should inflation expectations in the euro zone begin to creep back up. "The broad-based risks to price stability that were thought possible in the first half of 2008 have not materialized but have not disappeared completely," the OECD said in its report. "Monetary policy should be ready to react should long-term inflation expectations become unanchored." Currently, the OECD is forecasting inflation in the monetary union to slow to a rate of 1.4% this year, down two percentage points from 2008's figure The OECD also called on the establishment of a Europe-wide supervisory body for the euro zone to better oversee the financial sector. With an industry that increasingly functions internationally, it is only logical to have "a more centralised and integrated approach to supervision of the financial sector," the report said. "Possible options might include the establishment of a single EU financial supervisor or a European system of supervisors, with a central agency working in tandem with national supervisors," the OECD added. A number of ECB members had also proposed a centralized supervisory system, with the central bank taking a leading role in the initiative. Written by CEP News European Staff in Frankfurt,
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