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By Jan Strupczewski
BRUSSELS, Nov 12 (Reuters) - There is room for further interest rate cuts in the euro zone because inflation is falling quickly, the head of the Organisation for Economic Cooperation and Development (OECD) Angel Gurria said on Wednesday.
"Headline inflation is now rapidly receding, thanks to falling commodity prices," he said in a speech prepared for a Brussels policy briefing.
Euro zone consumer price growth slowed to 3.2 percent in October from a peak of 4.0 percent in July against the European Central Bank's goal of keeping inflation below, but close to 2 percent.
"With inflation expectations well-anchored and substantial economic slack likely to develop, there remains scope for further reductions in policy rates," Gurria said.
The ECB has already cut its main interest rate by 100 basis points to 3.25 percent since October. Other major central banks have also cut rates.
Gurria said that to help boost the euro zone economy, which could be flat or even contract next year, governments should consider discretionary fiscal packages on top of automatic higher budgetary social spending, called automatic stabilisers.
Gurria said the automatic increases in spending were already helping to cushion the impact of the slowdown.
"But more needs to be done, especially if continued uncertainty in financial markets delays the impact of monetary policy easing," he said.
"Thus discretionary fiscal easing remains an important near-term policy option," he said, stressing, however, that countries differed in the amount of room they had for budgetary manoeuvre.
Gurria said the United States and Japan, where the automatic budgetary mechanisms in response to economic slowdowns were weak and interest rates already low, needed discretionary fiscal stimulus more than Europe, where interest rates were higher and the automatic stabilisers stronger.
He also said that in order to better supervise financial institutions so that the financial crisis does not happen again, the European Union should not rule out the possibility of establishing a single European financial supervisor.
"Two potentially good options are either establishing a single EU financial supervisor, or developing a European system of supervisors that involves a central agency working together with national supervisors," Gurria said.
"A European system would be easier to integrate with the existing framework. But if it proved to be impossible to balance the interests of all countries within such a system, a single supervisor should not be ruled out," he said. (Editing by David Brunnstrom)