G-20 pledge signposts en route to 'normal' monetary policy

The world's biggest economies committed to an "ongoing exchange of information" and to be "mindful of impacts on the global economy" as they 'normalise' monetary policy, at the Group of 20 (G-20) meeting of finance ministers and central bank governors held in Brisbane, Australia last weekend.

The 20 finance ministers agreed moreover to an "ambitious" programme of growth-promotion to expand the global economy by $2 trillion more than is currently forecast, recognising that "the global economy still faces weaknesses in some areas of demand".

They said they would implement "concrete actions… to increase investment, lift employment and participation, enhance trade and promote competition", as well as unspecified "macroeconomic policies". Altogether, they said this would "lift our collective GDP by more than 2% above the trajectory implied by current policies over the coming five years".

The G-20 discussions drew on a report prepared by the IMF in conjunction with the OECD and the World Bank, which recommended serious reforms to labour markets and welfare systems; increased finance for long-term investment; and a reduction in barriers to international trade, including easing regulatory barriers to entry, in order to boost competition.

The communique agreed by the finance ministers and central bank governors said monetary policy "needs to remain accommodative in many advanced economies", with the timing of subsequent 'normalisation' "being conditional on the outlook for price stability and economic growth".

The normalisation of monetary policy – a concept that was left undefined – would, the communique said, "be positive for the global economy and reduced reliance on easy monetary policy would be beneficial in the medium term for financial stability".

All moves in monetary policy will "continue to be carefully calibrated and clearly communicated, in the context of an ongoing exchange of information and being mindful of impacts on the global economy", they said.

Christine Lagarde, managing director of the IMF, welcomed that commitment, saying it was "important... that the G-20 committed to consistently communicate monetary policy actions with the aim of aiding efforts to manage spillovers. Global dialogue and improved communication are essential to help safeguard financial stability", she said.

The G-20 also said they aimed to "substantially" complete a programme of financial sector reforms previously agreed in response to the global financial crisis, "building resilient financial institutions; ending too-big-to-fail; addressing shadow banking risks; and making derivatives markets safer".

A document prepared ahead of the meeting by the Financial Stability Board, the Basel-based group chaired by Bank of England governor Mark Carney, said the G-20 could – if it remained "focused and ambitious" – complete those remaining tasks "during the Australian G-20 presidency".