IMF policy-setting body calls for steps to avoid currency volatility

The policy-setting body of the International Monetary Fund on Friday called for the "clear communication" of monetary policy amid increasing exchange rate volatility, as many central banks rush to raise interest rates to tackle high inflation.

The call came as the U.S. dollar has been strengthening against the yen and other major currencies on the back of the U.S. Federal Reserve's aggressive monetary tightening.

The reference to currency movements was included in a statement issued by the chair of the International Monetary and Financial Committee following the body's meeting in Washington.

During the meeting, Japanese Finance Minister Shunichi Suzuki called on the international community to pay "close attention" to the impact of recent exchange rate movements on inflation, capital flows and debt, and to address the problems "appropriately."

A strong dollar helps to hold down U.S. inflation as it lowers the prices of imported goods, but it hits developing nations in particular by increasing their import costs and the burden of their dollar-denominated debts.

While noting that exchange rates should be determined by markets "in principle," Suzuki told the meeting that "excessive volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability," according to the Japanese government.

Concern over rapid currency fluctuations seems to have been shared among the countries at the meeting, with committee chair Nadia Calvino, first vice president of Spain and minister for economy and digitalization, saying in her statement, "Many currencies have moved significantly this year with increased volatility."

While emphasizing that fighting inflation should be a priority and that central banks are strongly committed to achieving price stability, Calvino said, "Clear communication of policy and safeguarding central bank independence can help avoid exacerbating market volatility, limit negative cross-country spillovers, and maintain policy credibility."

Although there was broad support for most of the chair's statement outlining the discussions at the meeting, the committee, as at its April meeting, failed to issue a communique amid a rift over Russia's war in Ukraine, according to a Japanese Finance Ministry source.

The chair's statement contained a foreword that cited criticism of Russia's military action in Ukraine, which began in February, while recognizing that the war "has continued with massive humanitarian consequences and detrimental repercussions for the global economy through direct and indirect channels."

© Kyodo News