IMF: Stimulus efforts still needed, but could cause problems

The International Monetary Fund says efforts to stimulate the economy with ultra-low interest rates and huge purchases of bonds are necessary, though there could be some bad side effects.

The IMF’s “Global Financial Stability Report” says this “accommodation” by central banks must be monitored closely because it could prompt companies, pension funds and others to borrow large sums that they would have trouble repaying if the economy turns sour.

IMF official Jose Vinals also said low interest rates in developed nations could temporarily boost the flow of money into emerging nations, disrupting their economies.

Vinals urged Europe to set up a “banking union” covering many nations with a single supervisor and system for coping with troubled banks. He called on European nations to speed up financial reform efforts, and noted the process is well along in the United States.

Vinals spoke in Washington as top officials from around the world are gathering for meetings of the International Monetary fund and the World Bank later this week.

(Photo: Darren Deans/