ECB could cut rates says OECD

The European Central Bank has room to cut interest rates further, the Organisation for Economic Co-operation and Development said on Tuesday.

In its 75th economic outlook the OECD said the global economic recovery is "bypassing Continental Europe", with Germany and Italy facing the "most difficult challenges".

"Because of these lingering uncertainties about the strength of the recovery and in light of subdued inflationary pressures, there seems to be a case for a further loosening of monetary policy", the report reads.

And the OECD suggests an interest rate cut would both boost the economy and give those countries struggling to balance their budgets more room for manoeuvre.

The organisation also suggests that the EU stability and growth pact - the rules controlling government spending - should be applied more quickly to prevent finances spinning out of control.

"Fiscal consolidation could per haps be achieved in the future through an improved design and more pre-emptive implementation of the Stability and Growth Pact," it says.

Ironically, the OECD's comments come on the same day as EU ministers are set to shy away from the pact and give Italy more time to rein in its budget.

Europe's economy could also be negatively affected by exchange rates that are set for a "bumpy" ride due to different growth rates and worsening balance sheets, the OECD says.

"This could be costly for Japan and Europe at a time when macroeconomic policies have little margin for manoevure left to offset the negative consequences of further dollar depreciation."

The euro soared to an all-time high of .29 in January before better data from the US brought it down to around .18.

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