No room for mistakes by central banks amid 'new mediocre'

Thu Oct 8, 2015 4:08pm EDT
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By Mitra Taj and Randall Palmer

LIMA (Reuters) - Central banks have little room for error in a low-growth world in which over-leveraged and commodity-dependent emerging economies and a slowing China are major risks, top international financiers told the International Monetary Fund's meeting.

Despite $7 trillion in quantitative easing from banks in industrial nations since the global financial crisis, the world is stuck in a "new mediocre" growth pattern, IMF chief Christine Lagarde said on Thursday.

The IMF meeting comes as the Bank of Japan looks poised to extend its money printing program, so-called quantitative easing, as it stares down the barrel of a fifth year of recession.

The European Central Bank is also expected to extend quantitative easing, while the two major central banks closest to raising rates, the U.S. Federal Reserve and the Bank of England, are holding fire.

"It is not the kind of economy in which you can make a mistake," Bank of England Governor Mark Carney told the meeting.

For both the Fed and the Bank of England, inflation targets are far out of reach, although both insist they are ready to hike rates, possibly by the end of this year.

Markets however are pricing in hikes only next year for both.

The IMF has urged the Fed, Japan and Europe to wait for more signs of recovery before tightening and Lagarde on Thursday repeated her plea to Fed Chair Janet Yellen to stay her hand.   Continued...

International Monetary Fund (IMF) Managing Director Christine Lagarde speaks during a news conference during the 2015 IMF/World Bank Annual Meetings in Lima, Peru, October 8, 2015.   REUTERS/Mariana Bazo