Sound bites: Eurozone being drawn into deflation

The Eurozone is slowly being sucked into the black hole of deflation. Headline inflation at 0.8% is dangerously close to negative territory for consumer prices. The threat of deflation and stubbornly high unemployment at 12% are a shocking testament that the ECB’s conventional monetary policy is not working. Near-zero interest rates and repeated tranches of ECB liquidity injections have failed to hit their mark. The Eurozone  is facing a very real threat of deflation and the risk of a dip back into recession is not too far away. It is time for unconventional means. The ECB needs to get bank lending kick-started again for consumers and business. Cutting the deposit rate below zero and charging banks for holding money at the ECB would be one way of incentivising banks to lend rather than hording money at the central bank. The economy clearly needs much more liquidity injection. A call to arms on true quantitative easing is well overdue. The ECB also needs to end its benign neglect on the strong euro. A weaker currency would help in the fight against deflation and help to boost the Eurozone export sector. It is time for a rethink at the ECB and the March policy meeting could be High Noon for a change in strategy.