BASEL, Switzerland (Reuters) - Central bankers from around the world Sunday discussed ways to prevent deflation and kick start lackluster global growth, including unorthodox policies such as buying up financial assets.
At an annual meeting of the Bank for International Settlements (BIS), bankers grappled with mounting concerns that falling prices in top industrialized nations could spiral into a deflationary cycle that undermines growth.
The strategies under discussion included setting specific targets for inflation rates as one way to prevent deflation from taking hold in advanced economies outside Asia.
Designing monetary policy to achieve a targeted inflation rate can be helpful not only to moderate price pressures, but also to boost prices when they fall too low, some said.
"Everybody was very confident about it," Gordon Richardson, former Bank of England Governor, told Reuters after the closed-door session.
"It was a theoretical discussion without any sharp corners," said Matti Louekoski, deputy governor of the Bank of Finland.
According to several central bankers attending the discussion, Federal Reserve Chairman Alan Greenspan said measures once considered unorthodox might become conventional, such as buying financial assets.
"We used to watch only commodity prices, exchange rates and interest rates, but now it seems we also have to examine or monitor asset prices," said one.
Policymakers are predicting a "gradual, sluggish pickup across the world moving into next year," Bank of England Governor Sir Edward George told Reuters on Saturday.
Uncertainties abound
But there is a lack of widespread confidence in this forecast, given already low interest rates, a falling U.S. dollar and stubbornly weak output in the major economic blocs -- Europe, the United States and Japan.
"We only expect very slow recovery, but of course we have some uncertainties that are more or less serious," Louekoski said.
Even though underlying economic fundamentals remain uncertain at best, the solid rally enjoyed by stock markets in the second quarter should be welcomed as a sign of increased investor confidence, some central bankers said.
"Clearly there is some optimism regarding the future. I take it as a good sign... If it is justified, we'll have to wait and see, but I think it may be sustainable," said Umayya Troukann, governor of the Central Bank of Jordan.
Others, however, said the gains were simply a recovery from the paltry performance at the start of the year, helped by relief at the end of the conflict in Iraq.
"We probably won't see further rapid growth in the second half," one central bank official said.
Growth this year in the world's top industrial nations is forecast at a meager 1.7 percent, according to forecasting firm Consensus Economics -- no better than last year.
The Fed last Wednesday pruned interest rates by a quarter percentage point to a 45-year low of 1 percent, and the European Central Bank trimmed rates earlier in June to a record low 2 percent.
The BIS, which acts as a forum for the world's central banks, is due to publish its 73rd annual report on Monday.
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