U.K. policymakers can consider further monetary easing as anemic nominal wage growth and broadly stable inflation expectations suggest weak underlying inflationary pressure, the International Monetary Fund said on Tuesday.
"Monetary stimulus can be provided via further quantitative easing (QE) and possibly cutting the policy rate," the lender said in its Article IV Consultation Concluding Statement.
Citing evidence, the IMF said QE can continue to support demand by lowering long-term interest rates and improving banks' liquidity.
"The Monetary Policy Committee should also reassess the efficacy of cutting the policy rate below its current level of 0.5 percent," the IMF said.
"However, the possible effect of a cut in the policy rate on net interest margins and thus financial stability needs to be assessed before taking such a step to provide monetary stimulus."
The uncertainty about inflation dynamics and the strength of disinflationary pressure coming from the output gap imply risks that inflation could take longer-than-expected to return to target, with convergence being further delayed by additional monetary easing, the report said.
However, the lender holds the view that the cost of such a delay is likely to be low relative to the benefits of a more rapid closing of the output gap.
by RTT Staff Writer
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