IMF / IMF Policy Dialogue: New Policy Frameworks for a "Lower-for-Longer" World




24 Nov 2020


WASHINGTON DC, United States



IMF / IMF Policy Dialogue: New Policy Frameworks for a "Lower-for-Longer" World
1. Long shot, IMF building exterior
2. Close up, IMF logo on building

3. SOUNDBITE (English) Kristalina Georgieva, Managing Director, IMF
“It is my pleasure to welcome you to this policy dialog focused on the consequences of low for longer interest rates around the world. By now, you know the story very well. Central banks have taken forceful and timely actions, providing ample liquidity and easing monetary policy. These actions have helped maintain the flow of credit and avert financial catastrophe from the covid-19 onslaught.
The work, however, is far from done. Even before COVID central banks were struggling to boost economic activity and keep inflation at the desired level. A range of policies has been deployed, including promises to keep policy rates very low and a large-scale asset purchases. They have guided the way in the decade following the global financial crisis and spurred one of the strongest employment expansions in history. It benefited many low skilled and minority workers.
The abrupt collapse in activity caused by COVID-19 brought unemployment back in focus and added to it the risk of skilled deterioration and an increase in poverty for the first time in decades. This puts pressure on central banks to deliver more rate cuts and further policy accommodation. They do have a critical role to play in what I call the long ascent out of this crisis. The problem is that more of the same is not possible and it will not be sufficient today. Central banks cut policy rates sharply after 2008. Nowadays, these rates have already been pushed to the floor or even below zero, even with a very long-term government bond yields that are extremely low or negative. We have limits to the scope for government debt purchases to boost the economy.

Now many central banks are going back to the lab reviewing their frameworks to identify innovative strategies and tools that will support the recovery from this crisis and are supported beyond the crisis. And we have a fantastic panel. Richard Clarida, Philip Lane, Tobias Adrien and the moderator, Carolyn Wilkins. They will discuss some of the new ways that central banks can apply to lift up stimulus to achieve their objectives and some of the tradeoffs they will face.
This pioneering effort will be helpful around the world. Everybody needs it. Many emerging markets now face the same challenges to boost their economies in the wake of the pandemic, with more limited room to cut interest rates. Earlier this year, we saw many of them trying asset purchases for the first time. And of course, we need these new strategies. But recognizing that new strategies and tools might produce new risks, new side effects, while new frameworks and tools may speed recovery, additional monetary stimulus may pose important risks to financial stability. We cannot take financial stability for granted. The traditional approach to deploy financial regulation and macro-prudential tools to mitigate such risks is in our hands. It should still be done, but it may not be enough. As my dear colleague our Tobias Adrian shows in the new paper, easier financial conditions today could encourage excessive risk taking. Monetary policy makers will need to balance a short-term boost to inflation and output against a buildup of macro financial vulnerabilities. Tobias will explain this trade off in his presentation. So let me conclude. Central banks must be innovative and bold, as they have been before in reviewing their frameworks, in updating their toolkit. This will give them vital new ammunition to fight the crisis and support the recovery, but monetary policy should not cannot do the job alone. Fiscal policy has a significant role to play. Policy makers have stepped up fiscal support during the crisis and need to continue to do so to underpin a sustainable and inclusive recovery. We need to walk on two legs.
The IMF is very supportive of these efforts. Finding the right policy tools and approaches to stimulate our economies while managing the risks is our critical endeavor. It is also consistent with our commitment to helping our members overcome the crisis, restore growth and confidence, and tackle challenges on the road to a more resilient global economy. The stakes could hardly be higher. Shielding millions of people from the tragedy of job losses and prolonged downturn is what we ought to do. And I look very much to the conversation, hearing the insights from our panelists. Enjoy it, and I can guarantee you would find this to be educational and also fun. Thank you very much for joining us here today.”
4. Closeup shot, IMF building exterior
5. Zoom out shot, IMF logo on building
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