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International Monetary Fund chief Christine Lagarde said Thursday that the European Central Bank has the leeway to lower interest rates in the recession-mired eurozone.
"Of all the major central banks in the world, clearly the ECB is the one that still has room to maneuver," Largarde said at a news conference at the start of IMF-World Bank spring meetings.
"And it will be for them independently to determine what is the right time to use that space to potentially reduce interest rates."
Lagarde said it was "critically more important" to make sure that central bank action translates into stronger banks and improved lending in the eurozone.
Asked about tight credit for companies, especially in the periphery countries where banks are fragile, Lagarde said ideally there should be "a top-down and bottom-up process."
"There has to be enough strengthening as well as restructuring, if need be, of the banks within the eurozone, in particular, as well as the right influx from the top at the right moment."
The proper transmission of an ECB rate cut can translate into lower rates as well for the small and medium-sized enterprises, she said.
"And that should hopefully unleash the credit that is so much needed for SMEs and households to be able to invest again."
Lagarde's remarks came a day after Germany's central bank suggested the ECB could cut its currently record-low rates if necessary, but that doing so may not actually prove very effective.
"We might adjust in response to new information," Bundesbank chief and ECB council member Jens Weidmann, said in a Wall Street Journal interview published Wednesday.
"I don't think that the monetary-policy stance is the key issue," he added.
Weidmann's remarks stirred market speculation that the ECB was signaling a new rate cut may be coming amid the eurozone's recession woes.
The ECB has held its key interest rate at an historic low of 0.75 percent since last July.
The European Parliament, in a resolution adopted Wednesday, called on the ECB to do more to ensure its monetary policy is more effective in spurring the 17-nation economy and job growth.
ECB officials have consistently argued that additional monetary easing might not actually have a significant impact because the currently low rates were not feeding through to those economies that needed it most.