The United States has begun to taper its stimulus program, and the impact this has on emerging market economies was expected to dominate discussions between G20 central bankers in Sydney at the weekend.
So far, reactions to the communique released yesterday have been muted.
As Westpac economist Huw McKay points out in a note this morning, there was nothing that could be described as “inflammatory language”.
While ambitious global growth targets have been agreed upon, it has been pointed out by several commentators that the language used was, to put it bluntly, soft.
McKay sums it up perfectly here:
There was however nothing that might count as inflammatory language in the communique, with direct references to exchange rates in the context of “flexibility” – a comment on regime choice – rather than levels. Excess volatility was alluded to, but the prescription was not “coordination”, as floated by some in the lead-up, but for individual nations to get their domestic houses in order.
McKay has also pointed out which paragraphs speak to the issue of emerging market volatility, potentially caused by the US taper:
“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy.”
This is furthered in the fifth point of the communique:
“As markets react to various policy transitions and country circumstances, asset prices and exchange rates adjust. This might sometimes lead to excessive volatility that can be damaging to growth. While many economies are prepared for this, our primary response is to further strengthen and refine our domestic macroeconomic, structural and financial policy frameworks. Exchange rate flexibility can also facilitate the adjustment of our economies. Some economies may need to rebuild fiscal buffers where policy space has eroded. We will consistently communicate our actions to each other and to the public, and continue to cooperate on managing spillovers to other countries, and to ensure the continued effectiveness of global safety nets.”