Mubasher: The International Monetary Fund (IMF) expressed its support for the recent decision by the European Central Bank (ECB) to keep interest rates low well beyond the end of net asset purchases this year.

At present there do not appear to be any generalized financial stability risks; the pockets of risk that are emerging should be handled using sound policies.

“Forward guidance on interest rates will become even more important as net asset purchases are wound down,” the report noted, adding that the reinvestment of maturing assets on its balance sheet provides the ECB another monetary policy lever and should be calibrated flexibly, while remaining anchored to the capital key.

The Highly rated euro-denominated debt securities, such as German bonds, are likely to become increasingly scarce, unlike in the United States, which is why according to the report the ECB could use its reinvestments flexibly to adapt to market demand for sovereign assets, while remaining anchored by the capital key.

The IMF also stressed that the structural reform agenda needs to be tackled urgently, primarily at the national level, to shore-up resilience and build support for further deepening of the monetary union, noting that further progress is also needed on reducing risks in the banking sector.

“Euro area architectural reforms need to combine increased risk sharing with risk reduction in both the public and private spheres.

“For now, growth is strong, and financial conditions are accommodative. But conditions will change, this much is assured, leaving no room for complacency,” the report concluded.