Global finance officials on Saturday said monetary policy alone was not enough to restore confidence in the shaky global economy, as they urged countries to take other steps to reinvigorate growth and create jobs.
“We need to act decisively to nurture a sustainable recovery and restore the resilience of the global economy,” the IMF’s steering committee said at the conclusion of the world lender’s spring meeting.
Central banks in the biggest economies should continue their accommodative monetary policies amid an uneven and weak economic recovery, the International Monetary and Financial Committee (IMFC) said in a communique.
However, easy-money initiatives alone cannot be counted upon to provide sufficient stimulus, it said as it called for “credible” plans to tighten budgets over time and structural reforms to make economies more productive.
“The commodity that is in shortest supply now is confidence,” Singaporean Finance Minister Tharman Shanmugaratnam, chairman of the IMFC, told a news conference.
However, in order to shore-up confidence, a range of policy actions were needed to nurse the recovery, he said.
“There is strong and common recognition that achieving growth and jobs cannot rest on one policy alone — there is no single bullet that will get us to normal growth and some normality with regard to jobs,” Tharman said.
Aggressive stimulus from central banks in the US, Britain, the eurozone and now Japan has so far failed to spark a reliable recovery, and questions are already being raised over how much more monetary policy can — or should — do.
People’s Bank of China Governor Zhou Xiaochuan (周小川) told the IMF panel that “the marginal benefits and costs” of central bank policies in rich nations needed to be re-evaluated.
“Unconventional monetary policies alone cannot solve the structural problems faced by advanced economies,” he said.
IMF Managing Director Christine Lagarde told reporters the extraordinary efforts by these central banks were appropriate for now, but acknowledged the concerns of emerging countries about the potential for destabilizing capital flows and upward pressure on their currencies.
“We affirm our commitment to refrain from competitive devaluations and any form of trade and investment protectionism,” the IMFC said, echoing a line from a communique issued on Friday by the G20 leading economies.
Worries that nations may try to seek a trade advantage by lowering the value of their currencies have been heightened by Japan’s recent efforts to overcome years of deflation.
The Bank of Japan earlier this month pledged to pump US$1.4 trillion into its economy, some of which is expected to find its way into emerging markets.
Lagarde said the IMF would step up its efforts to monitor the spillover effects on emerging nations from the extraordinary monetary easing in the developed world to guard against the risk of asset bubbles forming in poorer countries.
“Prolonged easing could exacerbate the financial vulnerabilities and affect the stability of the international monetary system,” Zhou warned the IMF committee.