Central Banks Can't Be 'Only Game in Town' Boosting Economies

Central banks cannot propel economic growth alone and governments must take steps too if expansions are to speed up, policy makers and investors said.

A day after the European Central Bank signaled it may soon boost its bond buying to tackle weak inflation, participants at a policy conference in Paris said too much is expected of monetary authorities and the reliance on them could leave economies permanently weak.

“Central banks have been considered the only game in town,” Bank of France Governor Christian Noyer said. “We all know central bankers do not act in a vacuum.”

More than five years since the end of the worst global recession since World War II, many major economies have still to regain their pre-crisis strength even amid record low interest rates and quantitative-easing programs. An increasingly vocal argument is that governments now need to revitalize their economies with structural reforms or greater spending if rates of expansion are to speed up.

A “paramount risk of very low interest rates is to entertain the illusion that governments can continue to borrow rather than make difficult and yet necessary choices and indefinitely put off the implementations of structural reforms,” Noyer said.

Among those in the audience and scheduled to speak later were Federal Reserve Chair Janet Yellen, Bundesbank President Jens Weidmann and Laurence D. Fink, the chief executive officer of BlackRock Inc.

Speaking after Noyer, Mohamed El-Erian, the former chief executive of Pacific Investment Management Co., said loose monetary policy can only support economies for so long without creating tension in financial markets.

“So far central banks have had no option but to step up to the responsibility even though they have imperfect tools,” said El-Erian, who is now an economic adviser to Allianz SE. “This is a journey not a destination. If the journey lasts too long, central banks go from being part of the solution to perhaps being part of the problem.”

Less concerned was Bank of Japan Governor Haruhiko Kuroda, who said his government had committed to providing short-term fiscal support and policies to make the markets for agriculture, services and labor more flexible.

“The Bank of Japan is not the only game in town,” said Kuroda. “The government has been implementing measures to achieve those committed objectives.”