G-20 Sydney Meet Backs Co-ordination in Monetary Policy

RBI Governor Rajan Asks for Care to Emerging Markets in Tapering Easement

The Group of 20 nations said monetary policy should remain accommodative for now in many advanced economies and pledged a coordinated push to boost growth by more than $2 trillion over the next five years.

Stimulus pullback timing depends on the outlook for prices and growth, finance ministers and central bank governors said in a statement after this weekend’s meeting in Sydney. The group will aim to lift collective gross domestic product by more than 2 percent above the trajectory implied by current policies.

“Recent volatility in financial markets, high levels of public debt, continuing global imbalances and remaining vulnerabilities within some economies highlight that important challenges remain to be managed,” the officials says.

Nations including South Africa, Brazil and India have seen their currencies rattled as the Federal Reserve begins to dial-back unprecedented stimulus measures. Governor Rajan of RBI representing emerging-market urged the U.S. to consider the spillover effects of its tapering. All central banks in the G-20 said on 23 February that they’re committed to carefully calibrated and communicated monetary policy, mindful of the effects on the global economy.

The language on carefully calibrated policies echoes a previous statement at the G-20 leaders summit in St. Petersburg, Russia in September.

“There was widespread agreement both from industrial countries and the emerging markets that we should make sure our actions are appropriately calibrated and we should worry about spillover effects,” Reserve Bank of India Governor Raghuram Rajan, who had warned before the meetings of a breakdown in global policy coordination due to tapering, said in an interview in Sydney on 23 February.

In response, European Central Bank President Mario Draghi said central banks are bound by their mandates and it’s also up to emerging markets to attend to their own structural weaknesses.

The MSCI Emerging Markets Index has lost 4.3 percent so far this year, its worst annual start since 2010. India has done better than Russia, and South Africa in currency volatility and financial stability but a precipitate action by Fed can upset all this.

The International Monetary Fund last week identified prolonged market turmoil in developing nations and deflation in the euro area as potential threats to a global economy but it currently expects to grow 3.7 percent this year. That would be the most since 2011.

The U.S., the U.K. and Japan’s economies are strengthening, there is “continued solid growth” in China and many emerging market nations, and resumption of expansion in the euro area, the G-20 said. An earlier draft version did not specifically mention China.

“Exchange-rate flexibility can also facilitate the adjustment of our economies,” according to the G-20 statement. “Some economies may need to rebuild fiscal buffers where policy space has eroded. We will consistently communicate our actions to each other and to the public, and continue to cooperate on managing spillovers to other countries, and to ensure the continued effectiveness of global safety nets.”

The G-20 officials said they will develop new measures, while maintaining fiscal sustainability and financial sector stability, to “significantly raise” global growth and achieve its aim of increasing collective GDP in the next five years.