Central banks must not be afraid of QE, official says

23 December 2011

Central banks across Europe should not avoid further quantitative easing (QE) should the situation dictate this to be the best way forward, an expert has said.

Lorenzo Bini Smaghi, executive board member at the European Central Bank (ECB), has urged policymakers to seriously consider such action if the level of deflation across the continent become a threat to the eurozone.

During an interview with the Financial Times, Mr Bini Smaghi indicated there are times when monetary stimulus is the most sensible option for ailing nations.

"I do not understand the quasi-religious discussions about QE … it is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation," he noted.

The official went on to state that central banks should only be concerned with using their powers to achieve price stability through all means possible.

Recently, Philip Hamilton, chairman of the Royal Bank of Scotland, told Sky News he expects a small country to leave the eurozone in the near future.

By Claire Archer

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