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G-20 pledges ‘carefully calibrated’ policies

MOSCOW — Global finance chiefs sought to reinforce the global economic recovery by promising “carefully calibrated” policies that will not spook markets.

MOSCOW — Global finance chiefs sought to reinforce the global economic recovery by promising “carefully calibrated” policies that will not spook markets.

The Group of 20 nations heeded calls from emerging market countries to guard against shockwaves when United States growth is secure enough for the Federal Reserve to cut back on its bond buying, according to a statement issued in Moscow yesterday. They also repeated that nations should move quickly towards market-based exchange rates and avoid competitive devaluation.

“Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated,” according to the statement issued after two days of meetings by finance chiefs. “We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging market currencies and bonds since G-20 finance chiefs last met in April. From South Korea to South Africa, anticipation that the Fed would soon pare back its quantitative easing efforts drew calls for coordination so as not to squelch global demand.

“We really focused on growth and employment and what is the policy mix that will help improve growth encourage and create jobs,” International Monetary Fund Managing Director Christine Lagarde said in an interview with Bloomberg Television. “Central banks share that concern.”

The improving US economy means a shift in Fed policy is coming and it will need to take place “in the proper manner”, Indonesian Finance Minister Chatib Basri said. “The question is about the pace,” he added. “Of course, we have to wait for what will happen in the next couple of months.”

Global yields surged and equities fell after Fed Chairman Ben Bernanke signalled on June 19 that the US central bank may start tapering its monthly stimulus programme this year. US 10-year yields, which climbed 36 basis points last month, have pared increases over the past two weeks as Mr Bernanke eased those concerns in recent appearances.

“We’ve all learned something from this,” Bank of Canada Governor Stephen Poloz said today. A certain amount of reaction “is inevitable”, he added. “You have to be mentally prepared for that and continue to emphasise that message and be very clear”.

A US Treasury Department official said the G-20 recognised that financial market volatility has returned to normal. The official acknowledged a lot of interest in US monetary and fiscal policy, while reiterating Washington’s call to do more to help the euro zone emerge from recession.

According to the final statement, G-20 nations will offer credible and ambitious fiscal strategies when leaders meet in St Petersburg in September. Those strategies must be “sufficiently flexible to take into account near-term economic conditions” while also making debt levels more sustainable, according to the statement.

Germany had sought tougher language that would require medium-term budget targets and push the US and Japan to follow through on previous commitments, said an official from a G-20 country. Germany in turn came under fire from the US and South Korea, who pressed Europe to prioritise growth over debt-cutting measures.

The G-20 has not yet decided if these targets will be binding, another official said. Leaders will use the September summit to decide how to proceed on the fiscal strategies, said the official, who declined to be identified because the talks are not public. BLOOMBERG

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