Fed ‘ forced’ cen­tral banks to ease pol­icy: El-erian

The Pak Banker - - FRONT PAGE -

The Fed­eral Re­serve’s record mon­e­tary stim­u­lus has com­pelled cen­tral banks from Mex­ico to Ja­pan to fol­low suit, said Pa­cific In­vest­ment Man­age­ment Co.’s Mo­hamed El-Erian.

The Fed’s “ar­ti­fi­cially low” bench­mark in­ter­est rate has put up­ward pres­sure on sev­eral cur­ren­cies, threat­en­ing to erode the com­pet­i­tive­ness of those na­tions’ economies, El-Erian, chief ex­ec­u­tive of­fi­cer of the world’s largest man­ager of bond funds, said in a speech to­day in Cal­i­for­nia. “Ul­ti­mately, they are forced — Mex­ico has been forced, Brazil has been forced, Korea has been forced, Ja­pan has been forced — into do­ing ex­actly the same thing” as the Fed.

The Fed­eral Re­serve has kept its main in­ter­est rate near zero since De­cem­ber 2008 and is en­gaged in a third round of bond pur­chases to spur eco­nomic growth and re­duce 7.7 per cent un­em­ploy­ment.

Mex­ico’s cen­tral bank un­ex­pect­edly cut its bench­mark in­ter­est rate last week for the first time since 2009, while Haruhiko Kuroda, who was con­firmed to­day as Bank of Ja­pan gov­er­nor, has pledged to do more to beat de­fla­tion.

“Cen­tral banks are car­ry­ing the ma­jor­ity of the pol­icy bur­den, not by choice but by per­ceived ne­ces­sity,” El-Erian said at a con­fer­ence held at Stan­ford Univer­sity.

Fed of­fi­cials have de­fended their record eas­ing to global pol­icy mak­ers as emerg­ing mar­kets tack­led an in­flux of cap­i­tal that has pushed up their cur­ren­cies. Vice Chair­man Janet Yellen said in Oc­to­ber that other coun­tries have the tools to man­age ex­cess cap­i­tal flows.

The US cen­tral bank has kept its main in­ter­est rate near zero since De­cem­ber 2008 and is en­gaged in a third round of bond pur­chases to spur eco­nomic growth and re­duce 7.7 per cent un­em­ploy­ment. As a re­sult, the Fed has be­come the eq­uity in­vestors.

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