BRUSSELS, Nov 18 (Reuters) - Austerity programmes and benign inflation should encourage the European Central Bank to keep interest rates at record lows through 2011 and continue to provide extra monetary stimulus as required, the OECD said on Thursday. The Organisation for Economic Cooperation and Development's projection for the ECB's rate path, given in its twice-yearly economic outlook, compares with a market consensus for a first rate hike in the fourth quarter of next year.
"Provided that the recovery remains on track, and given the weakness of inflation pressures and the expected fiscal consolidation, monetary policy stimulus should largely remain in place during 2011 and non-standard measures should continue to be wound down as conditions allow," the OECD said.
"The main refinancing rate should gradually be increased from the early part of 2012, unless higher than expected inflationary pressures emerge."
The ECB's mandate is to keep inflation below, but close to 2 percent over the medium term. Consumer inflation in October was 1.9 percent year-on-year. The central bank's main refinancing rate is at a record low of 1 percent.
"Inflation is likely to remain subdued in view of the remaining slack, and inflation expectations are well anchored," the OECD said.
It forecast inflation in the euro zone would be just 1.3 percent in 2011, down from 1.5 percent this year and slowing further to 1.2 percent in 2012.
The 16 country euro zone is recovering from a depression but quarterly growth is likely to have peaked in the second quarter of 2010 at 1 percent and economists expect it will slow down to 0.2-0.3 percent towards the end of the year.
"The recovery is projected to continue, although growth is expected to have moderated during the second half of the year compared with the exceptionally strong pace in the second quarter," the OECD said.
It forecast that euro zone economic growth would be 1.7 percent in 2011, the same as in 2010. In 2012, euro zone growth would be 2.0 percent, the OECD forecast.
The report said that in 2011, consumption was likely to accelerate due to low interest rates, higher household incomes and rising confidence.
It said private non-residential investment would increase as growth prospects improve, but the high level of excess capacity would constrain the pace of the recovery.
"The necessary fiscal consolidation will be a drag on the recovery. With the fading support from the weaker effective exchange rate, contribution of exports to growth will be largely determined by the strength of world demand."
(Reporting by Jan Strupczewski, editing by John Stonestreet)