BIS head calls for normalisation of monetary policy, IMF officials call for QE from ECB

The head of the Bank for International Settlements said on Wednesday that central banks should return to more normal monetary policy. Reuters reports:

Central banks should “stay the course of normalisation” and should not be distracted by the “bumpiness associated with this adjustment” Jaime Caruana, head of the BIS said in a speech in Frankfurt, home to the European Central Bank.

“They should not be overly concerned by occasional disinflationary pressures - these are often a result of structural change on the supply side,” Caruana said.

This call comes even as Reza Moghadam, Ranjit Teja, and Pelin Berkmen -- officials at the International Monetary Fund -- post that the European Central Bank should consider additional monetary easing.

The ECB must be sure that policies are equal to the tasks of reversing the downward drift in inflation and forestalling the risk of a slide into deflation. It should thus consider further cuts in the policy rate and, more importantly, look for ways to substantially increase its balance sheet, be it through targeted LTROs or quantitative easing (public and private asset purchases).

Indeed, fourth quarter growth in the euro area had been sluggish. A report on Wednesday showed that the eurozone economy grew just 0.3 percent, confirming an earlier estimate.

Still, eurozone retail sales rebounded 1.6 percent in January after having fallen 1.3 percent in December, and Markit's composite PMI for the region rose to 53.3 in February from 52.9 in January as the services PMI rose to 52.6, the highest since June 2011, from 51.6 in January.

Elsewhere in Europe, the UK services PMI slipped to 58.2 in February from 58.3 in January but maintained expansion for the 14th month.

In China, the HSBC/Markit Services PMI rose to 51.0 in February from 50.7 in January as the government on Wednesday announced a growth target of 7.5 percent for 2014.

However, activity in the US services sector slowed in February. Markit's services PMI fell to 53.3 from 56.7 in January while the Institute for Supply Management's services sector index fell to 51.6 from 54.0.

In addition, a report from ADP showed that private employment increased by just 139,000 last month while the increase for January was revised down to 127,000 from 175,000.

Slower US growth was blamed by the Federal Reserve on the weather. In its Beige Book released on Wednesday, the Fed described the economy's expansion in recent weeks as “modest to moderate”, with bad weather causing a “slight” decline in activity in two of 12 districts.