The International Monetary Fund's (IMF) Monetary and Capital Markets
Department and Banque de France (BdF) organized the first IMF Central
Bank Forum for Developing Markets, in Paris from September 9-10, 2014.
Discussions at the Forum focused on The Road to Inflation Targeting and
Transitional Monetary Arrangements. The Forum was intended as a platform
for countries with developing financial sectors that seek to modernize
their monetary frameworks. The Forum was attended by Governors, Deputy
Governors, or member of decision making bodies from 20 central banks
representing 33 countries. The Bank for International Settlements (BIS)
was also represented.1
In their opening remarks, Governor of the BdF Banque Christian Noyer
and IMF First Deputy Managing Director David Lipton emphasized the
timeliness of the event and topic in view of the growing interest in
many developing and emerging markets to move towards an inflation
targeting regime (IT). They also noted that the journey to inflation
targeting in many countries has been "easier said than done" as they
face particular challenges due to constraints in policy implementation,
less than favorable macro and financial environments, and, in the
post-crisis world, coordinating policies to achieve monetary and
financial stability objectives. All of this supports transitional
monetary arrangements during the Journey to IT. They noted that the
Forum offered a unique opportunity for policymakers to discuss those
challenges and how they are going about meeting them.
During the Forum, policymakers engaged in interactive discussions in
sharing the experience of their respective countries, some having
completed the transition to IT, others at different levels in the
transition. While circumstances across countries vary, the motivations
for the transition to inflation targeting also vary. Nonetheless, views
converged on a number of key issues; including:
• While IT remains appropriate, it should be implemented with some
flexibility and has certainly become more complex because of the
stabilization goals that may need to be pursued in the short-term.
Furthermore, there is a need for transitional monetary arrangements
along the road to IT, in particular effective and simple operational
frameworks which enhance the role of interest rates thereby
strengthening the interest rate transmission channel and supporting
financial market development. During the transition particular attention
needs to be devoted to strengthening internal analytical and
operational capacity.
• It was noted that not all pre-conditions needed to be met before
the beginning of the transition. However, a clear commitment to full
implementation was required, as well as a sound legal framework to
underpin central bank independence, clarity of the mandate, and
transparency. Outreach was also vital to ensure sustained support for
IT, which would be achieved through communication of how IT contributes
to the broader public policy goals.
• Flexibility of the exchange rate is critical, whilst recognizing
that some countries had faced large swings in capital flows over recent
years. Presentations by countries that have implemented full IT had
noted that the fear of letting the exchange rate move can be exaggerated
and in many cases it appears that greater exchange rate flexibility has
led to a lower pass through.
Upon closing the event, participants expressed their appreciation for
the initiative, noting that the Forum provided an opportunity for
countries with developing financial markets to share experiences, and
were looking forward for future discussions of issues of common
interest.
1
Central banks represented at the Forum were from Algeria, Angola,
Armenia, Brazil, the Central African Monetary and Economic Community
(CEMAC), Colombia, Egypt, Jamaica, Mauritius, Morocco, Mozambique,
Paraguay, Peru, the Philippines, Poland, Romania, South Africa,
Thailand, Tunisia, and the West Africa Monetary and Economic Union
(WAEMU).
