Draghi calls for co-ordination between monetary and fiscal policies

Tuesday, Jun 28 2016

ECB President Draghi in opening remarks to the ECB forum on central banking focused on the international dimension of global banking and policies, specifically the need for greater co-ordination across global central banks. This is likely to be a coded warning to China and Japan not to attempt competitive devaluations in an attempt to boost their growth prospects.

Given the increased levels of integration within the global economy and increase in overall trade volumes, the spill-over effects from monetary policy actions were greater. In particular, there were concerns over adverse effects of diverging monetary policies across different countries, which cause large fluctuations in exchange rates and swings in capital flows.

According to Draghi, formal policy co-ordination may not be needed, but there was a case for alignment of policies. Effectively, this meant a shared diagnosis of root causes of problems and a shared commitment to base domestic policies on that diagnosis. In this context, global central banks needed to consider whether policies are properly aligned across jurisdictions.

He also called for greater co-ordination between monetary and fiscal policies. Although central banks needed to preserve their independence, he stated that monetary policy will achieve its objectives faster and with less collateral effects if the overall policy mix is consistent.

Euro is currently being traded few points below 1.1050 level. Pair is likely to find support around 1.0970 handle and resistance above 1.11 level.

Source: FxEmpire.com

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