The International Monetary Fund said that monetary policy should remain accommodative to boost growth in advanced economies, while complaints about competitive currency devaluation appear “overstated.”
“Unconventional policies continue to provide essential support to demand and have lessened bank vulnerabilities in advanced economies,” the Washington-based IMF said in a report. “But vigilance is needed to ensure that a prolonged period of low interest rates and expanding central bank balance sheets does not give rise to fresh financial excesses.”
Group of 20 finance chiefs and central bankers last week backed the Bank of Japan’s recent stimulus push, signaling its focus on supporting domestic demand was strong enough for them to ignore the side-effects of a sliding yen.
At the same time, nations from the Philippines to South Korea have enacted or are considering policies to curb the effects of capital inflows.
The global recovery remains unbalanced with growth prospects in the U.S. strengthening even as the euro area remains stuck in “low gear” and Japan’s economic expansion may be “sluggish” after the effects of its stimulus measures wear off, the lender said. Advanced economies require more progress with medium- and long-term fiscal adjustment plans, entitlement reform and balance sheet repair, according to the report.
Amid concerns about the impact of monetary policy easing on currency moves, there “appears to be no major deviations of main currencies from medium-term fundamentals,” the IMF said.
To address these fears, China should allow its exchange rate to be more market determined and implement policies to promote consumption-driven growth, the IMF said. “Other economies need to deploy structural policies to foster the healthy absorption of capital inflows.”
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