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IMF to developed: Don't pull stimulus too quickly

Staff writer |
Advanced economies must avoid pulling back stimulus too quickly given the weak global economic recovery and market volatility highlights key risks in some emerging markets, the International Monetary Fund said.

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The IMF said there was scope for better coordination of central bank exit plans, something many emerging market policymakers have called for as the Federal Reserve has begun to wind back its U.S. support for the economy. IMF said the outlook for global growth was similar to its last assessment in January, with growth of about 3.75% seen for this year and 4% in 2015.

But there were new risks from very low inflation in the Euro zone and emerging markets needed sound economic policies and flexible exchange rates to weather turbulence.

"Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern and a persistent tightening of financial conditions could undercut investment and growth in some countries given corporate vulnerabilities," the note said.

Some emerging market policymakers have blamed the Fed for market upsets in January and last year, when the U.S. central bank began to mull withdrawing its stimulus. The Fed has started to slow the pace of its asset purchases, which have been trimmed to 65 billion per month over the last two months.

The IMF said there was scope for better cooperation on unwinding unconventional monetary policy, such as wider central bank discussion of exit plans, and urged the Fed to beware of ending its support too quickly.

"With prospects improving, it will be critical to avoid a premature withdrawal of monetary policy accommodation, including in the United States,” the IMF said. In the Euro area, the European Central Bank should ease policy further and the Bank of Japan should do the same if progress toward its 2% inflation target reversed or stalled.

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