IMF’s Blanchard: Interest Rates Should Stay Low
Central banks should keep interest rates very low, the International Monetary Fund’s chief economist Olivier Blanchard says in an interview to grow in Tuesday’s edition of French business daily Les Echos.
“It is essential, and for as long as necessary. So long as there is no recovery in private demand, it is unquestionably vital–maybe even beyond 2010,” Blanchard says when questioned if central banks should keep rates at very low levels.
“If that makes bubbles between now and then, uncommon means must be found [to address them], but it is essential for economic endeavor to start up again,” he says, noting this doesn’t stop central banks withdrawing other monetary policies that don’t involve rate changes.
Blanchard also warns that European countries like Portugal, Spain and Greece are facing serious budgetary difficulties, which means they will have to make huge sacrifices, like salary cuts. But he says the euro zone doesn’t risk diminishing apart.
Blanchard also says China needs to let the yuan appreciate to slow down external demand. Blanchard says a rise in the yuan could help address imbalances in world trade, but it wouldn’t be sufficient to maintain strong progression in rich countries.
Blanchard says that a recovery in the U.S. would ideally be driven by investment, which is doable if interest rates wait low.