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Make central banks responsible for financial stability: IMF

Published on Feb 5, 2013 6:39 AM

WASHINGTON (REUTERS) - Financial stability should become a core central banking objective alongside monetary policy, although potential conflicts between the two functions might require some institutional re-design, the IMF said on Monday.

The International Monetary Fund (IMF) in a study noted that although central banks had delivered low inflation, they had failed to prevent the devastating global financial crisis of 2008 to 2009.

As a result, the IMF said new tools were needed to prevent excessive risk-taking, and it said central banks may be best-placed to take on these tasks, although monetary policy should stay primarily focused on price and output stability.

"The interaction between monetary and macroprudential policies has implications for institutional design. Policy coordination can improve outcomes, making it advantageous to assign both policies to the central bank," the IMF wrote.

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