The International Monetary Fund is ahead of the game when it comes to learning lessons from the economic crisis. In a paper, which will be published today and has been seen by the Financial Times, Olivier Blanchard, the IMF’s chief economist, is refreshingly honest about the lessons from the crisis and logical in the ideas for reform floated.
This is the IMF working as it should. Even if some of its ideas do not fit the current orthodoxy.
The suggestion which leaps out of the page as most controversial is that inflation targets should be raised, implying that in normal times inflation would be closer to 4 per cent and interest rates would be higher than over the past few decades. That would give monetary policy more scope to be loosened in a future crisis, leaving less for fiscal policy to do. Read more
Germany’s economy ground to a halt at the end of last year, dashing hopes that its rebound would help lift activity across continental Europe.
Gross domestic product in the fourth quarter was flat compared with the previous three months, according to the country’s statistical office. That was weaker than expected and suggested that the ending of government emergency support measures – including subsidies for car purchases – had a greater impact than feared. Read more
China’s central bank on Friday said it was raising banks’ reserve requirements by 50 basis points to 16 per cent, effective February 25, its second increase this year. A basis point is 0.01 per cent. The move will be effective February 25.
Few in the market were expecting it to tighten policy again so soon, especially after a surprisingly low inflation reading for January. About 686bn yuan in central bank bills are due to mature in March, up sharply from about 310bn yuan in February, putting extra pressure on the PBOC to mop up that cash (from Reuters). Read more
The central bank of Chile has voted to keep the monetary policy interest rate at 0.5 per cent, saying it is likely to hold rates at this level until at least the second quarter. The board noted growing output and demand, falling unemployment and normalising lending. They said that in spite of European-generated market turbulence, the prospects for global recovery this year remained stable. Read more