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May 29, 2017

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IMF warns of easing-sparked asset bubbles

TOKYO--Monetary easing in the developed world could cause overheating and asset bubbles in emerging economies, the International Monetary Fund's managing director said in Tokyo on Sunday.

"Accommodative monetary policies ... could strain the capacity of those economies to absorb the potentially large flows and could lead to overheating asset price bubbles," Christine Lagarde told the close of the IMF and World Bank's annual meeting.

Critics in emerging nations have argued that easing measures, particularly in the United States, have driven down the value of the dollar and sparked huge capital flows to spill across their borders, raising the risk of overheating and driving up national currencies.

On Friday, Brazilian Finance Minister Guido Mantega warned that his country would take "whatever measures it deems necessary" to fight the problem.

"Emerging markets can't passively endure large and volatile capital flows and currency fluctuations caused by rich countries' polices," he said in Tokyo.

"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging-market economies."

Mantega added that: "Currency wars will only compound the world's economic difficulties."

Lagarde on Sunday appeared to be playing a balancing act on the effect of easing policies from central banks in Europe, Japan and the United States.

"We have seen several bold initiatives by major central banks certainly that the IMF highly praises and values as major contributing factors to stability," she said.

"These are big policy actions in the right direction. Indeed central bankers must play a significant role in pulling the global economy out of the current malaise."

But Lagarde acknowledged "there are diverging views within and across countries about important issues including the management of capital flows."

"Disagreement might be unavoidable but we must not forget that we all have a stake in global financial stability," she added.

"Given the crossborder spillover effect of monetary policy decisions, central banks may need to step up their international dialogue and cooperation.

"It is important of us to stay at the table and work through these issues."

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