Global central banks could coordinate policies better: draghi

Global central banks could coordinate policies better: draghi


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Central banks around the world need to coordinate on monetary policy in order to combat shared challenges but they also need to act to prevent "monetary policy spillovers,"


European Central Bank (ECB) President Mario Draghi said on Tuesday. "The international dimension of monetary policy is becoming more pertinent, since the common factors affecting


central banks are increasing," Draghi said. Draghi told an ECB forum in Sintra, Portugal that although central banks faced common challenges such as low inflation, policies needed to be


in place to counteract "destabilizing" monetary policy "spillovers." "Operating against persistent headwinds arising from abroad has forced central banks to deploy


monetary policy with more intensity to deliver their mandates, and that in turn results in higher financial stability risks and spillovers to economic and financial conditions in other


jurisdictions," he said. "Monetary policy has inevitably created destabilizing spillovers as well, especially when business cycles have been less aligned. The large exchange rate


fluctuations between major currencies, and the pressures some emerging economies have experienced from capital flows, are testament to that," he said. Mario Draghi addresses a news


conference after a meeting of the ECB Governing Council in St. Julian's, outside Valletta, Malta, Oct. 22, 2015. Darrin Zammit Lupi | Reuters "This is not so much a result of the


measures central banks have employed, but rather of the intensity with which they have had to be used," he added. In order to counteract low inflation and growth in the euro zone, the


ECB embarked on a massive quantitative easing program, boosting its arsenal of weapons earlier this year by cutting interest rates further and adding corporate bonds to its bond-buying


program. At the same time, central banks in the U.S., U.K. and Japan have similarly tried to boost lending, corporate spending and investment. The U.S. Federal Reserve has initiated rate


rises recently, however, a move that might have been premature given continuing concerns over U.S. and global growth. Speaking to the forum in Sintra, Draghi said that central banks could


coordinate policies. "We may not need formal coordination of policies. But we can benefit from alignment of policies. What I mean by alignment is a shared diagnosis of the root causes


of the challenges that affect us all; and a shared commitment to found our domestic policies on that diagnosis," he said. The upshot is that, in a globalized world, the global policy


mix matters, Draghi added, "and will likely matter more as our economies become more integrated. So we have to think not just about whether our domestic monetary policies are


appropriate, but whether they are properly aligned across jurisdictions." "We have to think not just about the composition of policies within our jurisdictions, but about the


global composition that can maximize the effects of monetary policy so that our respective mandates can best be delivered without overburdening further monetary policy, and so as to limit


any destabilizing spillovers. This is not a preference or a choice. It is simply the new reality we face." Follow CNBC International on Twitter and Facebook.