Basel, Switzerland: Global central bankers voiced concern on Monday about recent volatility in commodity markets, saying they needed to better understand its impact on inflation at a time when some emerging economies may be overheating.
Jean-Claude Trichet, speaking as chair of talks at a Bank for International Settlements meeting, also said policymakers had not discussed in depth Greece’s fiscal problems beyond agreeing that some advanced economies needed to improve their finances.
His comments on commodities came after oil posted a record weekly loss of more than $16 per barrel last week after making strong gains this year on the back of robust growth in emerging economies.
“We have associated, of course, potential overheating in emerging market economies with the overall recovery confirmed at a global level,” Trichet told a news conference after the meeting.
“We have this issue of commodity prices and oil and energy prices in particular with a level of volatility that we can see recently... We consider this is an issue which is of great importance. It has a great impact on CPI (consumer price index) inflation all over the world.”
On the topic of oil price swings, Trichet, who heads the European Central Bank (ECB), said the governor of Saudi Arabia’s central bank had given assurances that the world’s top oil exporter would keep supplies appropriate.
The Reuters-Jefferies CRB index, a global benchmark for commodities prices, last week staged its biggest weekly drop last week since late 2008, down 9%.
Trichet said governors needed to better understand correlations of oil, energy and other commodity prices as well as the consequences of commodities becoming asset classes of their own—a topic that is also being discussed by the Group of Twenty nations (G-20).
Trichet said that while some bumps were expected in the road ahead, policymakers believed the global economic recovery remained on track, thanks largely to growth in emerging economies.
Rapid recoveries—especially in emerging economies such as China and India—have bolstered price growth, but a surge in oil and food prices is raising concerns even in Western states where growth remains weak.
“When you are in a state of potential overheating, we have to make sure fiscal and overall elements of macroeconomic policy are right,” Trichet said.
There have been also encouraging signs in the US economy. Friday’s data showed that US companies created jobs at the fastest pace in five years in April, reinforcing views that the economic recovery would regain speed this quarter after stumbling in the first three months of the year. ECB become the first major developed economy central bank to raise interest rates last month, while the Federal Reserve’s $600 billion bond buying programme is expected to end in June.
Catherine Bosley contributed to this story.
RBI seeks law-backed autonomy
The Reserve Bank of India (RBI) on Monday pitched for “law-backed” autonomy to be able to deal more effectively with monetary issues.
While maintaining that the government has not interfered so far with RBI’s functional autonomy, governor D. Subbarao made a case for its “legally backed formal autonomy” while addressing a meeting of the Central Bank Governance Group in Basel, Switzerland.
He also made a case for setting up a monetary policy committee (MPC) to advise RBI on policy issues. Such a system prevails in the UK.
“My own view is that we should be moving towards an MPC system, but in a phased manner”, Subbarao said.
He added, however, that as a precondition for shifting to the MPC system, “...the central bank should be given legally backed, formal autonomy”.