IMF chief says neg­a­tive rates help­ing global econ­omy

The Pak Banker - - FRONT PAGE -

The world econ­omy would be worse off with­out neg­a­tive in­ter­est rates, ac­cord­ing to In­ter­na­tional Mon­e­tary Fund Man­ag­ing Di­rec­tor Chris­tine La­garde. Neg­a­tive rates in Europe and Ja­pan have helped sup­port global growth and price gains, she said in an in­ter­view in Ho Chi Minh City on Fri­day. The fi­nance sec­tor may need to im­ple­ment new busi­ness mod­els as a re­sult, she said. "If we had not had those neg­a­tive rates, we would be in a much worse place to­day, with in­fla­tion prob­a­bly lower than where it is, with growth prob­a­bly lower than where we have it," La­garde said. "It was a good thing to ac­tu­ally im­ple­ment those neg­a­tive rates un­der the cur­rent cir­cum­stances."

Cen­tral banks in Europe and Ja­pan have de­ployed neg­a­tive in­ter­est rates to stim­u­late the econ­omy, and Fed­eral Re­serve Chair Janet Yellen said the U.S. cen­tral bank is tak­ing a look at the tool "in the event that we needed to add ac­com­mo­da­tion." The pol­icy moves have trig­gered con­cerns that they could have un­in­ten­tional con­se­quences such as hurt­ing bank prof­its.

Neg­a­tive in­ter­est rates are a fairly new eco­nomic tool and more time is needed to as­sess the pol­icy, La­garde said. "So let's see whether it kick starts the process of fu­el­ing credit to the econ­omy, chang­ing the be­hav­ioral pat­tern of peo­ple and chang­ing the strat­egy of banks as well," she said. "It may be good for the econ­omy -- maybe not for­ever, but for a pe­riod of time."

Sep­a­rately, La­garde said the IMF may raise its 6.3 per­cent growth fore­cast for China due to the na­tion's planned eco­nomic re­forms and stim­u­lus. The fig­ure could be raised "a lit­tle more" af­ter an as­sess­ment of a re­cently an­nounced eco­nomic pack­age, she said.

"We be­lieve China will con­tinue to grow," La­garde said. "If those re­forms are im­ple­mented and the stimu- lus an­nounced also di­rected to the most ef­fi­cient lev­er­age in so­ci­eties, which we be­lieve is more con­sump­tion than nec­es­sar­ily in­vest­ment that would be fu­eled by credit, then the recipe should be quite good for China to lead a con­tin­ued qual­ity growth."

Chi­nese Premier Li Ke­qiang opened the an­nual Na­tional Peo­ple's Congress by an­nounc­ing this year's eco­nomic growth tar­get would be 6.5 per­cent to 7 per- cent. He said in his work re­port to the cer­e­mo­nial leg­is­la­ture that such a pace "will al­low for rel­a­tively full em­ploy­ment." Li also out­lined plans to cut back in­ef­fi­cient in­dus­tries and avoid mass lay­offs while achiev­ing growth tar­gets that are chal­lenged by ris­ing debt and a global eco­nomic slow­down. The debt lev­els in the blue­print raised con­cern among some an­a­lysts about the sus­tain­abil­ity of China's eco­nomic growth.

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