Banks, inflation top concerns for central bankers meet in Paris

Differences between the world's central bankers over inflation and the causes of global imbalances will be in the spotlight on Friday when they gather in Paris to discuss regulation in the wake of the crisis.

Top monetary policymakers from the United States, the euro zone, China, Japan and several emerging countries will join academics and businessmen under the banner of France's G20 presidency to debate topics including President Nicolas Sarkozy's call to reduce global reliance on the dollar.

Two weeks after G20 finance ministers said in Paris they would seek new safeguards by November to reduce the risks posed by big banks, bankers will discuss the challenges for financial surveillance and coordination. The session will be chaired by Bank of Italy Governor Mario Draghi, who is leading the G20 initiative.

Other topics will include reform of the international monetary system, the role of central banks after the crisis, and a session, chaired by outgoing Bundesbank Governor Axel Weber, on global economic imbalances in the wake of the crisis.

But with the U.S. Federal Reserve sounding calm about rising food and energy prices and the European Central Bank striking a more hawkish tone, market attention will focus on hints of when policymakers will start to tighten the credit taps.

"There is more distinction between the Fed and the ECB's attitudes to inflation than ever before," said Ken Wattret, chief euro zone economist at BNP Paribas.

"The market is pricing in a Fed rate rise soon after the ECB, but the Fed seems to be saying that's unlikely."

Markets will watch Thursday's ECB governing council meeting for any suggestion it could bring forward an expected interest rate rise to as soon as this summer, despite fears this could deliver a blow to fragile housing markets in Spain and Ireland.

Draghi -- one of a batch of euro zone policymakers including ECB President Jean-Claude Trichet due at Friday's talks -- said last week rate setters must watch inflation pressures to prevent them passing to wages.

In contrast, Fed Chairman Ben Bernanke this week dampened expectations the central bank might withdraw from its easy money policies by saying that a recent surge in oil prices would have a "temporary and relatively modest" impact on consumer prices.

At their meeting last month G20 finance ministers outlined a list of indicators to gauge imbalances, but China's reluctance to include exchange rates and reserves meant the terms of the final accord were watered down.

"One thing is talking about global imbalances, but another is doing something about them," said Wattret. "I don't see much evidence these imbalances are getting any better."

China Dragging its Feet

China will be represented on Friday by deputy central bank governor Hu Xiaolian. It, and other emerging nations, may repeat criticism of a second round of so-called quantitative easing in the United States for inundating their economies with hot money which they blame for stoking inflation and asset bubbles.

An IMF report last month said data had not borne that out so far and indicated slow growth was keeping wage pressures and second-round effects from fuel price rises in check.

China and other Asian and Latin American economies are resisting pressure, meanwhile, from Washington and Europe to tighten monetary policy to curb signs of overheating in their economies and allow their currencies to appreciate.

Friday's highest-profile panel features the ECB's Trichet, French Finance Minister Christine Lagarde, Fed Vice Chair Janet Yellen and Bank of Japan Governor Masaaki Shirakawa, discussing reform of the international monetary system.

Other invitees to Friday's meeting include the governors of the central banks of France, Italy, Korea and Japan, Cyprus and Chile, the IMF's chief economist Olivier Blanchard and EU Economic and Monetary Affairs Commissioner Olli Rehn.

[Source: By Daniel Flynn, Reuters, Paris, 03Mar11]

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