ECB should reduce rates, allow higher inflation: Lagarde

Reuters/DublinThe eurozone may need higher inflation in countries like Germany and lower interest rates across the bloc to ensure a sustained economic recovery brings palpable benefits, the head of the IMF said yesterday.Speaking during a visit to bailed-out Ireland, Christine Lagarde said while Europe had come a long way since last summer and financial anxieties have eased somewhat, more needed to be done to deal with “depressingly familiar” underlying issues.Reiterating a call in January for the European Central Bank to keep its monetary policy easy, the former French finance minister said there was room for a further cut after Frankfurt kept rates at 0.75% this week.“Monetary policy should remain accommodative, and we believe that there is still some limited room for the ECB to cut rates further,” Lagarde said in remarks prepared for a speech delivered in front of an audience that included Ireland’s representative on the ECB governing council, Patrick Honohan.“Restoring a sense of balance means lower inflation and wage growth in the south (of the eurozone), but it also might mean allowing somewhat higher inflation and wage growth in countries like Germany. This too is an aspect of pan European solidarity.”Lagarde, who has urged countries to press forward with fiscal and reform promises, said yesterday that the pace of such adjustments was crucial and the right balance was needed between putting the books in order and supporting the recovery.The International Monetary Fund chief said European leaders may need to focus less on headline deficit reduction targets to avoid undermining economic growth and help their recession-hit people as well as seeking to reassure financial markets.“Improving sentiment is not translating into higher jobs or incomes. It might be helping markets, but it is not yet helping people,” she said.Lagarde also said the IMF was open to changing the terms of Ireland’s bailout programme to help the bailed-out eurozone nation return to long-term bond markets. “We have an open mind about many issues, many of the terms and conditions of the exit strategy and as far as the adjustment to the loans,” the managing director of the IMF told reporters. Lagarde was speaking during her first visit to Dublin since it entered an €85bn ($112bn) bailout programme in November 2010, and her first visit to a rescued eurozone nation since taking over as head of the IMF in 2011. Earlier this week, EU finance ministers requested the so-called troika of lenders — comprising the European Union, the European Central Bank and the IMF — consider extending maturities on the Irish and Portuguese bailout loans. Such a move would reduce the immediate financial burden for these struggling economies to raise money on the open markets. “It’s not just about the extension of maturities, you can really think of other devices possible, but it certainly includes the extension,” Lagarde said. “We will look at it together with our two partners in the troika, and we have been tasked to do that and as I said with an open mind with the imperative to help Ireland exit the programme. “We are in a dialogue, we will continue in that dialogue so there is certainty as to the terms of the exit and the way forward,” she added. Ireland meanwhile hopes to become the first bailed-out eurozone nation to exit its rescue programme by returning fully to the sovereign markets in nine months. Dublin was bailed out in late 2010 when the global financial crisis, a domestic property market meltdown and massive debts left it on the brink of collapse. “The underlying problem (of the eurozone) is depressingly familiar - lingering debts of households, banks, Corps and government,” Lagarde added yesterday. “As the different sectors struggle to shake off these millstones, growth is bond to suffer. And indeed, we expect a continued recession in the eurozone this year.”