Jun 30, 2014

    Central banks face bumpy exit


    CENTRAL banks shouldn't procrastinate and must be ready for a rough ride as they exit emergency policy measures, the Bank for International Settlements (BIS) said.

    "It will be difficult to ensure a smooth normalisation," the BIS said in its annual report released yesterday.

    "The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly."

    The warning comes after Bank of England governor Mark Carney rowed back from earlier indications that he would raise interest rates next year, saying labour-market slack and weak wage growth weigh against an increase soon.

    In the United States, Federal Reserve chairman Janet Yellen said this month that the Fed doesn't intend "to signal any imminent change" in policy and that the balance sheet will remain large "for some time".

    The transition "from extraordinary monetary ease to more normal policy settings" will "require deft timing and skilful navigation of economic, financial and political factors," the BIS said.

    The Switzerland-based organisation, which counts 60 central banks as members, defines itself as a bank for central banks and the world's oldest international financial organisation.