Central banks vow to avoid market shocks

February 23, 2014

Sydney-Australia (Feb 23)  The Group of 20 central bank governors have agreed to better co-ordinate their monetary policy actions to avoid unnecessary volatility in global financial markets.

The US Federal Reserve has been criticised for the market volatility caused by its decision to ease back on its bond purchase program to stimulate growth, known as tapering.

The Fed started to scale back its massive program late last year as the US economy belatedly recovers from the global financial crisis.

The tapering activity has helped the US dollar rally, but caused outflows of capital in emerging countries and caused their currencies to dramatically fall in value.


In delivering the final G20 communique, Australian Treasurer Joe Hockey said it was important to make sure "markets aren't jumping at shadows".

"All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated," he told reporters on Sunday.

Mr Hockey and co-chair, Reserve Bank of Australia governor Glenn Stevens, were the hosts of the two-day G20 finance ministers and central bankers meeting in Sydney on the weekend.

It was the first gathering under Australia's 2014 G20 presidency.

Mr Hockey said central banks in many advanced economies still needed policies in place that would stimulate growth, however these would be scaled back "in due course".

"This eventual development would be positive for the global economy, and reduced reliance on easy monetary policy would be beneficial in the medium term for financial stability," he said.

European Central Bank president Mario Draghi said there was already a fair amount of co-ordination and communication by central banks of the larger economies.

"We can certainly do better that's for sure," he told reporters.

"We have press conferences every month, the same thing happens for (US Federal Reserve chair) Janet Yellen."

Dr Draghi pointed out central banks are bound by their own mandates for their own countries, but sometimes there were unintentional spillovers that impacted internationally.

"We shouldn't ignore those spillovers that our monetary policies do produce," he said.

On Saturday, Mr Hockey told reporters that there had to be a policy of "no surprises" in setting key interest rates and planning economic stimulus programs.

"I think if there is a no surprises policy in relation to monetary policy activity and central banks around the world have reasonable warnings of what may be events that do create market volatility then I think that's not unreasonable," he said.

International Monetary Fund (IMF) managing director Christine Lagarde said consistent communication is important to avoiding financial shocks.

"Global dialogue and improved communication are essential to help safeguard financial stability," she said.

"They also committed to take the necessary steps to manage deflationary and inflationary pressures."


Source: News.smh

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