Via IMF (Den Internationale Valutafond)

New Policy Frameworks for a Lower-for-Longer World

Opening Remarks by Kristalina Georgieva, IMF Managing Director

November 24, 2020

As prepared for delivery

Good afternoon, Washington; good evening, Frankfurt, and good day to
everyone! It is my pleasure to welcome you to this policy dialogue focused
on the consequences of ‘lower for longer’ interest rates around the world.

By now, you know this story very well: central banks have taken forceful
and timely actions, providing ample liquidity and easing monetary policy.
These actions have helped maintain the flow of credit and avert financial
catastrophe from the COVID-19 onslaught.

The work is far from done, however. Even before COVID, central banks were
struggling to boost economic activity and keep inflation at the desired
level. A range of policies has been deployed, including promises to keep
policy rates very low, and large-scale asset purchases. They have guided
the way in the decade following the Global Financial crisis and spurred one
of the strongest employment expansions in history, that benefited many
lower-skilled and minority workers.

The abrupt collapse in activity caused by COVID-19 brought unemployment
back in focus — and added to it the risk of skill deterioration, and an
increase in poverty. This puts pressure on central banks to deliver more
rate cuts and further policy accommodation. They do have a critical role to
play in what I call the “long ascent” out of this crisis.

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The problem is that more of the same is not possible, and will not be
sufficient today.

Central banks cut policy rates sharply after 2008. Nowadays, these rates
have already been pushed to the floor, or below zero. Even very long-term
government bond yields are extremely low or negative, limiting the scope
for government debt purchases to boost the economy.

Now, many central banks are going back to the lab, reviewing their
frameworks to identify innovative strategies and tools that will support
the recovery from this crisis and beyond.

Our distinguished panel —Richard Clarida, Philip Lane, Tobias Adrian, and
moderator Carolyn Wilkins, will discuss some of the new ways that central
banks can provide stimulus to achieve their objectives, and some of the
tradeoffs that they will face.

This pioneering effort will be helpful around the world. Many emerging
markets now face the same challenges to boost their economies in the wake
of the pandemic, with more limited room to cut interest rates. Earlier this
year, we saw many of them trying asset purchases for the first time.

New risks

Of course, new strategies and tools might produce new side effects as well.

While new frameworks and tools may speed recovery, additional monetary
stimulus may pose important risks to financial stability. The traditional
approach is to deploy financial regulation and macroprudential tools to
mitigate such risks. This should still be done, but it may not be enough.
As our own Tobias Adrian shows in a new paper, easier financial conditions
today could encourage excessive risk-taking.

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Monetary policymakers will need to balance a short-term boost to inflation
and output against a buildup of macro-financial vulnerabilities. Tobias
will explain this tradeoff in his presentation.

In conclusion,
central banks must be innovative and bold, as they have been before, in
renewing their frameworks and updating their toolkits. This will give
them vital new ammunition to fight the crisis, and support the
recovery. But monetary policy should not and cannot do the job alone.
Fiscal policy has a significant role to play — policymakers have
stepped up fiscal support during the crisis, and need to continue to do
so to underpin a sustainable and inclusive recovery.

The IMF is very supportive of these efforts. Finding the right policy tools
and approaches to stimulate our economies, while managing the risks, is a
critical endeavor. It is also consistent with our commitment to helping our
members overcome the crisis, restore growth and confidence, and tackle
challenges on the road to a more resilient global economy. The stakes could
hardly be higher: shielding millions of people from the tragedy of job
losses and a prolonged downturn.

I look forward to the conversation and hearing the insights from our
panelists. Thank you very much for joining us here today!

IMF Communications Department

PRESS OFFICER: [$token_name=”Curr Press Officer”]

Phone: +1 202 623-7100Email:


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