The European Central Bank (ECB) should contemplate quantitative easing if inflation in the single currency bloc remains low for a protracted period, says International Monetary Fund (IMF) Managing Director Christine Lagarde.
"If inflation was to remain stubbornly low, then we would certainly hope that the ECB would take quantitative easing measures by way of purchasing of sovereign bonds," Lagarde told CNBC on Thursday.
She defines "stubbornly low inflation" as prices remaining well below target in spite of measures being taken to boost inflation.
Euro zone consumer prices rose by just 0.5 percent year-on-year in May, down from 0.7 percent in April and well short of the ECB's target of close to 2 percent.
Unlike other major central banks, the ECB has so far resisted embarking on a quantitative easing program, but has said it stands ready do so if needed.
Earlier this month, the central bank unveiled fresh measures to stimulate the economy including taking an unprecedented step on of imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it.
When asked whether further ECB action may lead to complacency among governments in terms of carrying out structural reforms, Lagarde said: "They all seem convinced that they have to pursue structural reforms, support demand by good solid monetary policy, and continue the fiscal consolidation path they have agreed."
Top global risks
Lagarde said there are three major risks currently facing the global economy -- namely job creation, a sovereign and corporate debt overhang and geopolitical tensions.
Geopolitical risks have escalated sharply in the recent months with an insurgency in Iraq, political upheaval in Ukraine and territorial disputes in the South and East China Seas.
"All of that is creating massive uncertainty, and massive uncertainty is not conducive to investment decisions," she said.
On Ukraine Lagarde said, "We have put in place very promptly a financial program for Ukraine to restore its stability."
Ukraine's state-owned gas company Naftogaz said on Thursday Russia's gas monopoly Gazprom wants to terminate a contract which compensates Ukraine if it needs to use its gas to meet additional demand from Europe, Reuters reported.
At the moment, Gazprom compensates Ukraine if Kiev is forced to provide the rest of Europe with increased supplies from its underground storage sites.
"We very much hope that the negotiations that are ongoing between Gazprom and Naftogaz will continue and will be settled appropriately," Lagarde said.