Washington (dpa) - The smaller businesses that could revive
eurozone growth are being choked by a banking sector that has yet to
be fully repaired, International Monetary Fund chief Christine
Lagarde said Thursday.
The European Central Bank (ECB) could still cut interest rates, but too many banks, especially in the eurozone's weaker economies, remain unhealthy and unwilling or unable to lend, she said.
Global finance leaders are in Washington this week for the semi-annual joint meetings of the World Bank and the IMF over the weekend.
"What in our view is more critically important," thet IMF chief said, "is to make sure that there is fluid transmission between central banks and banks, so that ... the monetary tools that the ECB could use are properly transmitted, and the lower rates can actually translate into lower rates as well for the small and medium-sized enterprises."
The ECB's benchmark interest rate for the 17-member eurozone is 0.75 per cent.
"Of all the major central banks in the world, clearly the ECB is the one that still has room to manoeuvre," she said ahead of the IMF's spring meetings in Washington. "It will be for them independently to determine when is the right time to use that space and potentially reduce interest rates."
The US Federal Reserve, in comparison, dropped its key rate to near zero more than four years ago, and has issued policy guidance suggesting it will maintain that level until unemployment declines significantly - likely for years to come.
The Fed has further undertaken a bond buying spree to push investment into the private sector, a monetary policy that amounts to printing money at a current pace of 85 billion dollars a month.
The IMF this week praised the progress made by the eurozone in lowering deficits, shoring up its bailout mechanism and forging a path toward a banking union.
But the Washington-based crisis lender called for further work to complete the process of European financial system repair, including recapitalizing weak banks and moving swiftly toward common eurozone banking oversight and deposit insurance.
"There has to be enough strengthening as well as restructuring, if need be, of the banks within the eurozone, in particular," Lagarde said. "That should hopefully unleash the credit that is so much needed for the (small and medium-sized enterprises) and households to be able to invest again."
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