“Central banks got it right when they saved the world economy, but their unprecedented actions risk disruptive cross-border spillovers and potentially heavy losses when the time comes to reverse course, the IMF said on Thursday.
In its most detailed survey so far of the dramatic measures taken to counter the damage from the 2007-09 financial crisis, International Monetary Fund staff repeated earlier assessments that the steps had worked but face diminishing returns.
However, in new research, they also said central banks could face severe losses when they begin to withdraw the extraordinary sums of money they have pumped into financial systems around the world.
Massive market bets are riding on whether the U.S. Federal Reserve and its peers can execute a graceful withdrawal from more than four years of ultra-easy monetary policy, which helped restore confidence in global growth.
Central banks have pumped trillions of dollars, euro and yen into the global economy through bond-buying campaigns after interest rates were slashed close to zero.
The ultra-easy monetary policies have prompted critics to warn of the risk of inflation and asset price bubbles, while some developing nations have argued their richer counterparts were seeking to gain an export edge by lowering the value of their currencies.
Jaime Caruana, head of the Bank for International Settlements, warned on Thursday that big central banks should not delay in winding down their economic support programs. The BIS advises global central banks.
But the IMF found the benefits of unconventional measures still outweighed the potential costs in the United States and Japan, and it reserved its toughest language for politicians who fail to undertake long-overdue economic reforms.
“A key concern is that monetary policy is called on to do too much, and that the breathing space it offers is not used to engage in needed fiscal, structural, and financial sector reforms,” the IMF said in the report.
“These reforms are essential to ensuring macroeconomic stability and entrenching the recovery, eventually allowing for the unwinding of unconventional monetary policies,” it said.
FRIEND OR FOE…”
If you enjoy the content at iBankCoin, please follow us on Twitter
