–Welcomes China Rate Hike; Appropriate To Continue Stimulus Withdrawal

By Brai Odion-Esene

WASHINGTON (MNI) – Any monetary policy action by the United States
is bound to have a wider impact on the global economy, underlining the
importance of a coordinated policy response, a spokesman for the
International Fund said Thursday.

Speaking to reporters during the biweekly press briefing, David
Hawley, senior advisor at the IMF, also welcomed Tuesday’s surprise 25
basis point rate hike by China, calling it appropriate giving the pace
of recovery within the world’s second largest economy.

Even though some Federal Reserve officials, such as Atlanta Fed
President Dennis Lockhart, have insisted that any decision to inject
more monetary stimulus will be dictated by conditions in the domestic
economy, Hawley said the systemic importance of the U.S. means the
ripples from any Fed move will be widespread.

“One has to recognize that any monetary or fiscal policy action by
the U.S., or another systemically important country, inevitably carries
implications for other countries,” he said.

Hawley added that this is why a coordinated policy response is
important, “to ensure that the benefits of one country’s policies are
more widely shared.”

The same goes for global currency discussions, he said, with the
IMF being the forum for discussing the international monetary system and
coming up with collaborative approaches to “strengthening in the system
and rendering it more stable.”

He noted that while the global economy is emerging broadly as
expected from the ‘Great Recession,’ conditions remain fragile and
geographically unbalanced.

“That means the policy mix will vary according to countries’
circumstance,” he said.

On the unexpected decision by the People’s Bank of China to
increase both the one-year deposit rate and one-year lending rate by 25
basis points, Hawley said the move was in line with the IMF’s
long-standing policy advice.

He said the IMF supports the PBOC’s decision given the pace of
recovery in China. “It’s appropriate that the central should continue to
withdraw its monetary stimulus and return the pace of credit growth to
more normal levels.”

As for data released Thursday showing Chinese economic growth
slowed to a still healthy 9.6% y/y rate in the third quarter from an
unrevised 10.3% in the second quarter, Hawley said those figures are
broadly in line with the IMF’s forecasts. “So they don’t change the
nature of our policy advice to China,” he said.

Asked to comment on the austerity budget delivered by Portugal’s
minority government to its parliament last week Friday, Hawley welcomed
the Southern European nation’s consolidation measures.

He said they should make the government’s 2011 targets achievable.
“We urge the authorities to implement these measures forcibly to ensure
medium-term public debt sustainability.”

Portuguese authorities will need to complement these measures with
further structural reforms to boost productivity and to promote economic
growth through labor and product market reforms, he said.

Hawley also noted the IMF is “sharpening” its surveillance of
members’ economies, with particular focus on the spillovers from
policies in one country to the others as a whole.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MI$$$$,M$U$$$,MMUFE$,MGU$$$,M$Q$$$,MN$FX$,M$X$$$,MFX$$$]