Central bankers move to smooth market exit fears

BeRLIN • Some of the world’s top central bankers sought on Tuesday to calm markets that have “jumped the gun” about the impact of the u.S. Federal Reserve’s plan to slow its bond-buying stimulus.

The chiefs of the european Central Bank and the Bank of england led the way, trying to douse expectations that the Fed’s announcement last week could lead them to follow suit and unwind their growth-supporting policies.

“In terms of monetary policy, price stability is assured, and the overall economic outlook still warrants an accommodative stance, the exit from which by the way is still distant,” eCB president Mario draghi said here.

earlier on Tuesday, one of his lieutenants, Benoit Coeure, said the policy steps eCB had taken to support growth and fight the eurozone crisis would stay “as long as necessary” and that it could go further still, if needed.

“There are other measures, standard and non-standard, that we can deploy if warranted,” he said in London.

The double-barrelled offensive from Mr. draghi and Mr. Coeure showed eCB is not about to follow the Federal Reserve, the first of the world’s major central banks to lay out a path for exiting its stimulus measures.

yields on u.S. and other government debt have leaped since Fed chairman Ben Bernanke said the u.S. central bank might start reducing its bond buying later this year and possibly end it by mid-2014.

Bank of england governor Mervyn King said markets had overinterpreted Mr. Bernanke’s comments.

“I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates.

“It doesn’t,” he said in his final appearance as governor before parliament’s treasury committee on Tuesday.

“The Federal Reserve has merely said that the easing, in which it is still engaging, may taper at some point depending on economic conditions,” Mr. King said.

If europe will not follow the Fed’s lead, neither will Japan, which has only just embarked on an extraordinary stimulus program.

Mr. King’s successor, Mark Carney, said a return to a more normal policy stance was inevitable at some point and that banks and regulators should be prepared. “eventually across all major jurisdictions the objective is to move away from exceptional emergency accommodation,” he said.

On the weekend, the Bank for International Settlements, known as “the central banks’ central bank,” ramped up pressure for an end to cheap money by saying an exit from accommodative policies would only become harder over time.

Clear communication by the Federal Reserve and other central banks about their future intentions will be vital if turmoil is to be limited.

The International Monetary Fund’s chief economist, Olivier Blanchard, said an exit from so-called quantitative easing “is not fundamentally very difficult, but there is a problem of communication on how you do it, which is going to create volatility.

“But the volatility we have seen in the past week is exaggerated,” he added.

Nonetheless, eurozone policymakers are concerned that disruptions to markets could impede a recovery.