Lagarde: Monetary Policies Have Bought Time—Use It Wisely

Policymakers should heed local and global impact

Path to exit should be contingent on pace of recovery

Global policymakers must work better together to restore lasting stability, growth

These policies—such as the purchase of assets by central banks to support financial stability and boost activity—have allowed the global economy to lift itself out of the depths of the financial crisis. Lagarde called for policymakers to “use this time wisely,” emphasizing two points.

First, the need for policymakers to work better together to take into account more fully the impact of these unconventional policies—local and global—and how that affects the path of exit. Second, that “all policymakers, within countries and across countries—have a responsibility to take the full range of actions needed to restore growth and stability.”

Impact on global economy

The IMF’s assessment is that the impact of unconventional monetary policies (UMP) so far has been positive, Lagarde said. On balance, all countries benefited, first from lessened risks of financial turmoil, then from increased growth.

Estimates suggest that quantitative easing, the purchase of assets by the U.S. Federal Reserve, boosted world output by more than 1 percent. Although the major gains were in the early phases, unconventional monetary policy has been a success, she said.

While emphasizing that there should be “no rush to exit,” Lagarde said that the period of exceptionally loose monetary policy must eventually end. But when exactly this happens will depend on country circumstances. “In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan, too, exit is very likely some way off,” she said.

“One thing we can say for certain: The path to exit will and should depend on the pace of recovery,” Lagarde added.

Uncharted territory

Just as for entry, exit from unconventional monetary policies will take the world into uncharted territory, said Lagarde. “Therefore, the Fund and policymakers need to start thinking about what exit will eventually look like.” The IMF Managing Director highlighted a few aspects:

Balance of stability and risk taking: One focus of the IMF’s work is on how best to balance the need for stability and risk-taking. On the one hand, Lagarde said, long periods of very loose monetary policy and ultra-low interest rates mixed with the hunt for higher yields could prove to be a recipe for unhealthy risk-taking. On the other hand, if unconventional...