OECD Calls For ECB Rate Cut

OECD calls on ECB to cut rates quickly toward zero. The OECD predicts a contraction in eurozone economic activity of 4.8% this year and 0.0% growth next. At the same time the unemployment rate is expected to rise to 10% this year and 12% in 2010 from just 7.5% in 2008. The OECD expects inflation to average 1.3% this year and just 0.7% next and said “the growing disinflationary pressures anticipated during the next two years imply that the remaining scope for cutting policy rates should be used quickly.” The OECD also said the ECB should show “a commitment to maintain rates at this level for as long as warranted”. The ECB has always fiercly maintained its independence and is unlikely to change its policy stance on the back of the OECD comments. Central bank officials have repeatedly said that rates are appropriate for now and in our central scenario we see the refi rate remaining at 1.0% for the remainder of the year and into 2010.