The Telegraph
Sunday , April 13 , 2014
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Larger role for monetary policies

[+ucfirst('Arvind Mayaram Economic affairs secretary')+]

Washington, April 12 (PTI): Calibrated and clearly communicated monetary policies will build trust and improve business sentiments across the world by leaving little room for speculation, economic affairs secretary Arvind Mayaram said today.

“We believe monetary policy cooperation is extremely crucial in the current juncture. This calls for calibrated monetary policies by advanced economies which are communicated clearly among our central bankers and between central bankers and the market plus a willingness to listen to others,” he said.

Recent risks of very low inflation in euro areas might demand use of appropriate tools in the coming time to thwart deflation tendencies, Mayaram said in his intervention at the meeting of G20 finance ministers and central bank governors.

Mayaram is representing India during the ongoing spring meet of the International Monetary Fund and the World Bank.

“However... calibrated and clearly communicated policies will greatly act as trust builders and improve the business sentiments across the globe by leaving little room for speculation.

“In terms of exchange rate policy, while flexible exchange rates are desirable, a cautious approach should be followed before going for currency revaluations which can result in trust deficit and currency wars,” he said.

Structural policy gaps regarding investment, product and labour markets further need to be filled to put the global economy on sustainable higher growth trajectory in the medium to long run, he said

The upcoming elections in several countries may affect the full impact of structural reforms this year, he said.

Investment in infrastructure should be a priority area for filling output and growth gaps, he said, adding financing of the same is a challenge the G20 is yet to fully cater to.

“Financial innovation and investment by institutional investors of surplus countries is an area where cooperation can produce tangible results. My leader, in particular, hopes to see actions by Brisbane, that enhance the catalytic role of MDBs (multi-development banks) for infrastructure investment financing by exploring new options to optimise balance sheets,” he said.

Central banks such as the US Federal Reserve have resorted to near-zero interest rates to boost growth in the wake of the global financial crisis in 2008. The Fed had also started a massive bond purchase programme to push down borrowing costs and inject liquidity, leading to capital inflows to emerging economies such as India.

When the Federal Reserve last year announced gradually rolling back the bond purchase programme, there was huge capital flight out of emerging markets causing sharp decline currency value.