Central banks told to cooperate on managing global liquidity
JACKSON HOLE, Wyoming (Reuters) - Central banks should coordinate to avoid unwanted side effects as they exit from ultra-easy monetary policies that have left the world awash in cheap money, top policymakers were told on Saturday.
Opening the second day of an annual monetary symposium in Jackson Hole, Wyoming, after a week in which several top emerging markets suffered steep losses, a former Bank of France deputy governor painted a grave picture of the problem.
"The main challenge will be to manage the consequences of monetary policies, and their evolutions, on cross-border liquidity movements," Jean-Pierre Landau concluded in a paper he presented to an audience that included top central bankers from advanced as well as emerging market economies.
"Amplifications, feedback loops and sensitivity to risk perceptions will complicate the task of exit and necessitate very close and constant dialogue and cooperation between central banks," said Landau, now a professor at Princeton.
But he lamented that the necessary coordination on monetary policy was unlikely, and warned of the potential for the "fragmentation" of global capital markets.
Stocks and currencies plunged in India, Indonesia, Brazil and Turkey this week as investors fretted over a looming reduction in the U.S. Federal Reserve's monthly bond purchases.
Turkish Central Bank Governor Erdem Basci was attending the conference, although his Brazilian counterpart, Alexandre Tombini, canceled to stay home and deal with the crisis.
The Fed's bond buying, or so-called quantitative easing, has been at the heart of its aggressive efforts to revive U.S. economic growth after it cut interest rates to nearly zero in 2008. Interest rates in Europe and Japan are also ultra-low.
However, the purchases have spurred massive capital inflows into faster growing emerging economies, which are now suffering as investors anticipate an end to the easy money. Continued...