IMF, U.S. encourage ECB, Japan monetary stimulus

Fri Nov 7, 2014 2:23pm EST
 
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By Leigh Thomas and David Milliken

PARIS (Reuters) - The International Monetary Fund and the United States encouraged the European Central Bank and the Bank of Japan toward greater monetary stimulus on Friday and urged governments around the world to do their share to cultivate growth in their countries.

Calling the world economy "fragile, brittle and fragmented", IMF Managing Director Christine Lagarde told a conference of central bankers in Paris it was "perfectly legitimate and appropriate" for the ECB and the BoJ to take unconventional steps to combat low inflation and economic stagnation.

U.S. Federal Reserve Chair Janet Yellen said central banks "need to be prepared to employ all available tools, including unconventional policies, to support economic growth and reach their inflation targets," especially where governments have withdrawn fiscal stimulus.

The comments came a day after the European Central Bank ordered its staff to start preparing for bolder measures if needed to fight slowing inflation, on top of a range of rate cuts, asset purchases and lending operations already agreed.

However, Indian central bank governor Raghuram Rajan said whether "more stimulus is the answer" was a good question. More economic reforms were equally important, he said.

Lagarde said governments with healthy budget positions should do more to support growth, describing as insufficient a German announcement of an extra 10 billion euros in spending on public infrastructure over the next three years.

"In this part of the world, we have to repeat over and over that monetary policy cannot be the only game in town, and that there has to be a combination of sound fiscal policies, use of fiscal space for those countries that have fiscal space in order to support growth and rejuvenate that growth," she said.

"Clearly, the announcement that was made yesterday was in the very small ballpark of what will be needed in order to do that."   Continued...

 
U.S. Federal Reserve Chair Janet Yellen (R) and IMF President Christine Lagarde (L) attend a conference of central bankers hosted by the Bank of France in Paris November 7, 2014.  REUTERS/Charles Platiau