I.M.F. Director Urges Banks to Retain Loose Money Policy

Global growth is likely to remain tepid this year and central banks should keep their easy monetary policies in place, the head of the International Monetary Fund said on Wednesday.

“Thanks to the actions of policy makers, the economic world no longer looks quite as dangerous as it did six months ago,” Christine Lagarde, the I.M.F. managing director, told the Economic Club of New York.

While there were signs that financial conditions were improving, Ms. Lagarde said those changes were not translating into improvements in the real economy.

“In present circumstances, it makes sense for monetary policy to do the heavy lifting in this recovery by remaining accommodative,” Ms. Lagarde said.

“We know that inflation expectations are well anchored today, giving central banks greater leeway to support growth,” she added.

She said a three-speed recovery was under way, led by fast-growing emerging economies, followed by countries like the United States that are on the mend, and with the euro zone and Japan trailing.

In January, the I.M.F. trimmed its 2013 forecast for global growth to 3.5 percent from 3.6 percent, and projected a 4.1 percent expansion in 2014. It said the world economy grew 3.2 percent in 2012.

Ms. Lagarde said the exceptionally loose monetary policies of central banks in advanced economies was a concern for emerging economies, which fear a sudden reversal of the large capital flows that have flooded their economies in recent years as investors have sought higher yields.

“Right now, these risks appear under control,” Ms. Lagarde said, but she urged emerging economies to increase their defenses to deal with possible repercussions when the Federal Reserve and other central banks start to cut back their monetary stimulus.

Article source: http://www.nytimes.com/2013/04/11/business/imf-director-urges-banks-to-retain-loose-money-policy.html?partner=rss&emc=rss