Central banks should not delay the timely withdrawal of the cheap money they have pumped out to calm crises because of fears that would disrupt financial markets.
So said the Bank for International Settlements – which is sometimes referred to as the “central banks’ central bank”.
Word that the US Federal Reserve is looking at winding down its extra stimulus funding, recently triggering a global sell off of shares.
In its annual report, the Bank for International Settlements (BIS) said central bank policymakers should not delay and warned that could lead to greater disruptions.
“(Central banks) will need to strike the right balance between the risks of exiting prematurely and the risks associated with delaying exit further,” the BIS report said.
“The longer the current accommodative conditions persist, the bigger the exit challenges become,” it said.
Policymakers also need to take more account of how national monetary policy may affect other economies, the BIS said.
“This does not necessarily mean that central banks need to coordinate their policies more closely than in the past. Rather, it suggests that central banks, at a minimum, may benefit from putting more weight on the global side effects and feedbacks that arise from their individual monetary policy decisions.”
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