Lagarde: Weak nations still need central bank aid

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SummaryThe head of the International Monetary Fund (IMF) cautioned the world’s major central banks Friday not to withdraw their unconventional support

The head of the International Monetary Fund (IMF) cautioned the world’s major central banks Friday not to withdraw their unconventional support for weak economies too soon.

IMF Managing Director Christine Lagarde said stimulative policies are still needed in key regions, especially Europe and Japan, which have struggled with prolonged weakness.

She spoke at an annual economics conference in Jackson Hole, Wyoming, sponsored by the Kansas City Federal Reserve Bank.

Lagarde said central banks must carefully develop strategies for scaling back their efforts to keep borrowing rates low. Any pullback should be determined by the strength of individual economies, she said.

Her comments come as the US Federal Reserve is signalling that it could slow its bond purchases later this year if the US economy continues to improve. The Fed’s bond buying has helped keep US interest rates near record lows.

“Unconventional monetary policy is still needed in all places it is being used, albeit longer for some than for others,’’ Lagarde said in her speech to the conference.

The anticipation of a slowdown in Fed bond buying has unsettled US stock and bond markets and sent interest rates up.

Rising US rates have, in turn, triggered turmoil in some emerging economies, such as Turkey, India and Indonesia. Officials in those countries have tried to halt declines in the value of their currencies as investors have shifted money into higher-yielding investments elsewhere.

Lagarde noted the market declines that have followed Fed chairman Ben Bernanke’s signal in June that the Fed could begin slowing its bond purchases later this year if the US economy strengthens further.

She said finance officials should prepare contingency plans in case market turbulence worsens.

In her speech, Lagarde said the support being provided by major central banks is buying time for nations to implement key economic reforms.

“Push ahead with deeper reforms to lay the foundation for durable and lasting growth,’’ Lagarde said.

“Do not waste the space provided by unconventional monetary policies.”

She said the IMF will provide support where possible, including emergency loans to countries that need them.

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