IMF/ CENTRAL BANKS

The low interest rates and unconventional policies by major central banks have put a floor under the economy and have helped stabilize the financial system, the International Monetary Fund reveals in a new study. But it also warns the eventual exit from these policies will need to be executed extremely carefully. IMF

• Categories: News & Features / News Stories / Unifeed
• Video Length: 00:02:14
• Production Date: 11 April 2013
• Asset Language: Original
• Corporate Name: INTERNATIONAL MONETARY FUND - IMF
• Subject Topical: ECONOMIC DEVELOPMENT; FINANCING; ECONOMICS; ECONOMIC CONDITIONS; ECONOMY; ECONOMIC DEVELOPMENT
• Geographic Subject: UNITED STATES
• MAMS Id: U130411b

Description

STORY: IMF/ CENTRAL BANKS
TRT: 2.14
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 11 APRIL, 2013 WASHINGTON, DC, UNITED STATES

Shotlist

11 APRIL, 2013 WASHINGTON, DC, UNITED STATES

1. Wide shot, press conference begins
2. SOUNDBITE (English) Laura Kodres, Monetary and Capital Markets, IMF:
“The chapter examines the use of “forward guidance” in which central banks signal their desire to keep interest rates low for an extended period of time, and large scale asset purchases that have helped provide liquidity and stabilize specific markets such as the interbank market or the mortgage market.”
3. Cutaway reporters
SOUNDBITE (English) Laura Kodres, Monetary and Capital Markets, IMF:
“By and large, the domestic banking sectors have benefited from these central banks policies.”
4. Cutaway, reporters
5. SOUNDBITE (English) Erik Oppers, Monetary and Capital Markets, IMF:
“We don’t see any high level risks right now. There are some risks which are elevated, but the main message from the chapter is that for now, risks from the MP plus policies have been relatively contained.”
6. Cutaway, reporters
7. SOUNDBITE (English) Laura Kodres, Monetary and Capital Markets, IMF:
“With the economic recovery still fragile, the current policy stance is appropriate and there is no indication for now that an exit is imminent”.
8. Cutaway, reporters
9. SOUNDBITE: (English) Laura Kodres, Monetary and Capital Markets, IMF:
“The entrance to this set of monetary policies was unconventional, and so too will be the exit”
10. Cutaway, press conference
11. SOUNDBITE (English) Erik Oppers, Monetary and Capital Markets, IMF:
“ Once the eventual exit comes, banks should again make sure that they are well prepared to make use of private interbank market when central banks are no longer engaging in that activity”.
12. Cutaway reporters
13. SOUNDBITE: (English) Laura Kodres, Monetary and Capital Markets, IMF:
“With long term rates so low, it is unclear how expectations of market participants will respond to the early signs of tightening”.
14. Cutaway, press conference
15. SOUNDBITE: (English) Jan Brockmeijer, Monetary and Capital Markets, IMF:
“The key is in clear communications. Communications towards markets, but also between monetary authorities so that they understand clearly each other what their intentions are.”
16. Wide shot, press conference ends

Storyline

International Monetary Fund (IMF) released today an analytical chapter of the Global Financial Stability Report which analyzes the effects of central bank policies on banks and financial stability since the global crisis. Central banks have taken bold policy actions that have reduced banking sector vulnerabilities and stabilized some markets, such as the interbank and mortgage securities markets. But the policies may have undesirable side-effects that could put financial stability at risk the longer they are in place.

The IMF said so far these risks are not showing up much in banks, but could be shifting to other parts of the financial sector, such as to so-called “shadow banks.” “We don’t see any high level risks right now”, said Erik Oppers from the MCM department of the IMF.

“There are some risks which are elevated, but the main message from the chapter is that, for now, risks from the MP plus policies have been relatively contained.”
“With the economic recovery still fragile, the current policy stance is appropriate and there is no indication for now that an exit is imminent” said Laura Kodres, chief of global stability analysis in the IMF’s Monetary and Capital Markets Department and the head of the team that produced the analysis.

The report says that central bank policies should continue to support the economy and financial stability until the recovery is well established. “Once the eventual exit comes, banks should again make sure that they are well prepared to make use of private interbank market when central banks are no longer engaging in that activity”, said Erik Oppers, the Deputy Division Chief of the MCM department.

The IMF says policymakers need to be vigilant and assess the emergence of potential and emerging financial stability threats. It also recommends that they closely monitor the effectiveness of their policies and stand ready to adjust them as needed.

Coordination with other economic policies, such as monetary and fiscal policy, will also help reduce the reliance on macroprudential tools. “The entrance to this set of monetary policies was unconventional, and so too will be the exit”, said Laura Kodres, Assistant Director of the MCM department.

To minimize adverse effects on market sentiment, the IMF points out that it is important that central banks communicate clearly about their strategies to exit from their extraordinary policy measures, ahead of their implementation. “The key is in clear communications”, said Jan Brockmeijer, Deputy Director of the Monetary and Capital Markets Department. “Communications towards markets, but also between monetary authorities so that they understand clearly each other what their intentions are.”