“Even though monetary policies should remain very accommodative until the recovery is well established, policy makers need to exercise vigilant supervision to assess the existence of potential and emerging financial stability threats,” wrote IMF researchers led by S. Erik Oppers, deputy division chief for the Global Financial Stability Division in the Monetary and Capital Markets Department.
The researchers found “few immediate financial stability concerns” in the monetary policies, which have “increased some measures of bank soundness” while not impairing the functioning of markets. Potential complications include greater credit risk for banks, slower rebuilding of balance sheets and “challenges in exiting from markets in which central banks have intervened,” they wrote.
U.K. lenders using the Funding for Lending program created by the Bank of England and the Treasury in August pay as little as 0.75% including fees for funds, fueling concern that efforts to spur the economy are helping borrowers at the expense of retirees and other savers.
Monetary stimulus deployed by advanced countries to spur growth is unlikely to stoke inflation as long as central banks remain free of outside influence to react to challenges, IMF economists wrote in a chapter of the fund’s World Economic Outlook released April 9.
The four largest developed-market monetary authorities have driven borrowing costs to record lows. Bank of Japan Governor Haruhiko Kuroda, who took office in March, last week embarked on record easing, aligning with the Fed, the European Central Bank and the BOE in their commitment to return their economies to full strength.
Fed Chairman Ben S. Bernanke said April 8 that expansionary monetary policies in the world’s largest countries are “mutually constructive.” Monetary stimulus from global central banks gives “additional support for other countries through stronger financial markets, more exports,” Bernanke said at a conference in Stone Mountain, Georgia.
IMF Managing Director Christine Lagarde said in a speech yesterday that the global economy probably won’t gain much traction this year as Europe and Japan fail to recover and lag behind other developed economies.
The 17-country euro region still has much to do, including cleaning up a banking system that isn’t lending enough to the real economy, Lagarde said. Japan must rely more on monetary policy to boost its growth, she said, while welcoming last week’s move by the Bank of Japan to embark on record easing.