Unwinding central banks’ unprecedentedly large bond-buying programs is a tricky — and risky — business. For the chief financial officer of the World Bank Group, the exit from easy monetary policy is something regulators worldwide should seek to coordinate.
“The risk is, for some reason, you have some overreaction in interest-rate markets,” including a spike in rates that throws investors off-balance, Bertrande Badré said in a recent interview on the sidelines of a World Bank summit in Singapore. “There would be an impact on capital flows as well.”
The World Bank’s base case is that the U.S. Federal Reserve and the Bank of Japan will make a “smooth transition or a controlled transition” out of their expansionary policies. But that will require effective communication on how policy makers plan to withdraw stimulus.
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