International central bankers pledged to take care in telegraphing monetary-policy shifts and consider their global effects amid renewed calls from emerging markets for greater cooperation.
Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi were among the Group of 20 policy makers who yesterday ended Washington talks promising to “provide clear and timely communication of our actions and be mindful of impacts on the global economy as policy settings are recalibrated.”
The commitment to more transparency came a day after Reserve Bank of India Governor Raghuram Rajan and former Fed Chairman Ben S. Bernanke publicly sparred over how much coordination is needed at a time when the Fed is slowing asset-purchases and the ECB is debating whether to begin its own quantitative easing program.
The officials, responsible for about 85 percent of the global economy, met as Russia’s takeover of Crimea from Ukraine added geopolitical tensions to discussions about the policies needed to boost oversight of financial markets, reduce unemployment and strengthen growth.
The G-20 officials ended their meeting by saying the prospects for global growth are improving and that they will monitor the crisis in Ukraine for economic and financial-market fallout. They lobbied the U.S. to allow an increase in the financial resources of the International Monetary Fund, saying the tensions in the former Soviet bloc highlight the lender’s importance as “the world’s first responder to financial crisis.”
U.S. stocks fell, driving the Standard & Poor’s 500 Index its worst week since June 2012. The 10-year Treasury yield declined 10 basis points on the week to 2.62 percent, while 30-year yields hit a nine-month low yesterday.
The MSCI Emerging Markets Index declined 0.6 percent, halting five days of gains and trimming this week’s advance to 1.3 percent.
The Fed’s evolving exit from easy monetary policy and the potential for the ECB to go deeper into unchartered territory left U.K. Chancellor of the Exchequer George Osborne warning investors to prepare for greater financial-market volatility as the world economy returns to normal.
“It is something we need to be communicating more so that it is priced in and that people expect this return of normal volatility in those markets and it’s not a surprise when it happens,” he said.
The G-20 has pulled “back noticeably from advocating cyclical stimulus,” said Steven Englander, managing director and global head of G10 FX Strategy at Citigroup Inc. in New York, noting the latest statement was more upbeat on the outlook than the group’s communique in February.
Almost a year since Bernanke’s hint that the Fed could soon start paring its asset purchases led to an exodus of capital from emerging markets, Rajan this week said policy makers need to “rethink the international rules of the game.” He said there needs to be greater monetary policy coordination because emerging economies such as India’s are being hurt as the Fed looks to exit its unconventional stimulus.
Failure to take into account spillovers on other economies would spark “reactive policies” such as currency interventions, he said at a conference organized by the Brookings Institution. He proposed an independent assessor to vet unorthodox monetary policies.
That drew a response from Bernanke, who was in the audience. He said Fed officials frequently meet with counterparts in developing nations and that Rajan’s call reflected “the fact that you are very skeptical about unconventional monetary policy.”
“Emerging markets are probably better off than if these policies had not been used,” said Bernanke, who left the Fed in February and now works at Brookings.
Australian Treasurer Joe Hockey played down differences within the G-20 after chairing its meeting. “I didn’t get any sense of agitation,” he said.
Some emerging-market officials also were sanguine. U.S. policy makers also “have sent a number of signals and you must be very shortsighted not to react by now,” Russian Finance Minister Anton Siluanov said. “The capital is returning to EM markets.”
G-20 officials said they were monitoring the “economic situation” in Ukraine and welcomed IMF engagement including talks for a loan package worth as much as $18 billion.
Laughing at Sanctions
Responding to a comment this week by Ukraine Finance Minister Oleksandr Shlapak that Russia is “laughing” at U.S. and European Union sanctions, Treasury Secretary Jacob J. Lew said the penalties are having a “real effect” on Russia’s economy.
“If you look at the impact of the last few weeks, few months on Russia’s economy, on the market value of its stocks, of its exchange rate, it has been moving in a bad direction,” Lew said. “It’s been trending in a bad way this year, and sanctions are part of that.”
G-20 officials also called it “deeply disappointing” that an overhaul of the IMF’s ownership and governance has yet to be completed, urging the U.S. to endorse it “at the earliest opportunity.”
The U.S. Congress is delaying implementation of the 2010 pact by all IMF member countries that would adjust some nations’ shares, or quotas, in the fund and boost its permanent lending capacity to about $739 billion. The plan would give emerging markets such as China more clout at the institution, which was set up at the end of World War II to help safeguard global monetary stability.
To contact the editors responsible for this story: Chris Wellisz at firstname.lastname@example.org Brendan Murray, Chris Fournier