The European Central Bank has room to cut interest rates, International Monetary Fund Managing Director Christine Lagarde said in a newspaper interview, while denying the fund had opened aid talks with Spain.
“Growth can be spurred by monetary policy, such as the LTRO we have already seen the ECB use. It is also evident that there is room for another interest rate cut,» she was quoted as saying by Swedish daily Svenska Dagbladet on Tuesday.
Two rounds of cheap three-year loans under the ECB’s long-term refinancing operation helped stave off a credit crunch and boost market confidence, at least temporarily, at the end of last year and in early 2012.
The worsening economic backdrop since then has fueled speculation the ECB might cut rates at Wednesday’s meeting, though 62 out of 73 analysts in a Reuters poll said they expected the bank to keep borrowing unchanged at 1 percent.
With Greece, Ireland and Portugal all under international bailout programs, financial markets have grown increasingly anxious about the risk that Spain, mired in a deepening banking crisis, could be forced to do likewise.
Sources say Spain’s Prime Minister Mariano Rajoy is pressing for a direct European rescue for the lenders with moral support from the European Commission, but Germany is reluctant. Media reports say Berlin is instead pressing Madrid to request a full bailout.
Lagarde told the newspaper the IMF was not in any talks with Spain over an aid program.
“We are absolutely not doing that. Spain has done much. They have shown political courage and carried out a string of reforms and austerity,» she was quoted. [Reuters]