IMF urges more interest-rate cuts in Euro zone

The International Monetary Fund last week warned that euro-zone officials risk reviving financial and economic stress amid prolonged recession with a halting response to Europe's crisis.

"The centrifugal forces across the euro area remain serious and are pulling down growth everywhere," the IMF stated in its annual economic review of the currency union.

The fund noted that the European Central Bank should spur demand through additional monetary easing: "Further policy rate cuts, including negative deposit rates, would support demand across the euro area and address deflationary pressures."

Europe's Central Bank should also use other tools at its disposal, such as new longer-term loans or direct purchase of private assets, to help lower borrowing costs for small- and medium-size businesses in stricken countries such as Spain and Italy, the fund said.

Testifying at the European Parliament in Brussels, ECB, President Mario Draghi said the Central Bank was doing all it could to stimulate lending to the private sector, though it couldn't force commercial banks to lend. He ruled out steps by the ECB to revive a securitised market for small-business loans.

Such purchases are an option for the European Commission and the European Investment Bank, Draghi said, without mentioning the ECB, which he said "now has an advisory role."

"The ECB doesn't have a direct (tool) to force banks to lend" to small businesses, he said.

He also reiterated his guidance on interest rates at the recent ECB news conference: no tightening for the foreseeable future. "The exit from our current monetary policy stance, being accommodative, is distant," he said.