IMF forecasts 'modest' impact as major economies express concern

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Prime Minister Sheikh Hasina poses with the participants of an international conference on people's empowerment and development at its inaugural session at Hotel Ruposhi Bangla in the capital Sunday. — Focus Bangla

WASHINGTON, Nov 5 (Agencies): The impact of the Federal Reserve's new move to boost a weak US economic recovery "may be modest," a spokeswoman for the International Monetary Fund (IMF) said yesterday.
"We believe that this action shows the Fed's commitment to supporting the economy, the recovery, and in particular to avoiding the risk of long-term deflation, or a lowering of long- term inflation expectations," said IMF spokeswoman Caroline Atkinson.
"And we expect that it will have a positive impact on the economy although that may be modest."
The Fed announced Wednesday it will pump an additional 600 billion dollars into the economy until mid-2011 to help lower long-term interest rates in hopes of spurring consumer spending that drives nearly 70 per cent of US growth.
The IMF's chief economist, Olivier Blanchard, earlier Thursday described the Fed's move as "courageous." The approach, known as quantitative easing, involves buying long-term Treasury bonds from banks.
China today led an Asian backlash against measures by the US to kickstart economy recovery, which have stoked concerns that a flood of loose money could destabilise regional economies.
But Asian nations fear the effects of extra cash pumping through the financial system-as traders seek a better return on their dollar than they would get in the West.
Stock markets, which made big gains in recent weeks as traders anticipated the stimulus, surged on Thursday and Friday on the news.
But the plan also prompted warnings of a wave of protectionism and capital control measures by Asian nations to stave off so-called hot money, potentially inflaming tensions ahead of next week's Group of 20 summit in South Korea.
Xia Bin, a member of the Chinese central bank's monetary policy committee, branded the stimulus plan "abusive" and warned it could spark a new global downturn.
The Bank of Korea warned that inflows of foreign cash had gathered pace in recent months but could abruptly change direction.
A senior finance ministry official said separately Seoul would "actively" seek further ways to curb excessive inflows. Foreign investment in South Korean bonds, which plunged after the 2008 collapse of financial services firm Lehman Brothers, started rising in the second half of last year.
Japanese Finance Minister Yoshihiko Noda said Friday he would keep a "very close eye" on the US moves amid concerns the yen, which is already at 15-year highs against the dollar, could surge further.
Tokyo stepped into currency markets in September for the first time in six years to try and cap the yen's rise, which has hammered exporters, seen as key to Japan's recovery.
Hong Kong Financial Secretary John Tsang said the extra money flows would "bring more pressure on our stock and property market" and added: "We will look at the situation closely in the short term."
Indonesia's central bank said Thursday it viewed foreign capital inflows as a greater threat than price inflation in Southeast Asia's biggest economy, as it kept its key interest rate unchanged at a historic low of 6.50 percent.
The governor of the Philippines' central bank, Amando Tetango, said it would "remain vigilant in monitoring developments and gauging how effectively these Fed moves will perk up real US growth" and the global inflation outlook.
Thai Finance Minister Korn Chatikavanij said the Thai central bank governor was "in close talks with his Asian counterparts and if there is a continuous inflow of capital into regional economies, we will put in place measures to curb speculation and prevent serious volatility".