Nations pledge global growth as China changes lending rules

G-20 nations will pursue "carefully calibrated and clearly communicated" policy moves and will move "more rapidly" toward market-determined exchange rate systems

Global finance chiefs sought to buttress the global economic recovery with pledges to avoid spooking markets as China moved to scrap a lending rule that had constrained its banks.

Group of 20 nations will pursue "carefully calibrated and clearly communicated" policy moves so that the US and Japan don't cause cross-border damage when they start rolling back stimulus, they said after a two-day meeting of finance chiefs in Moscow. They will move "more rapidly" toward market-determined exchange rate systems, following China's internal banking change, according to a July 20 statement.

"China's action is probably the one thing that will help markets," Lena Komileva, chief economist at G+ Economics in London, said in a July 20 telephone interview. "Global markets are dominated by a butterfly effect. If the Fed is to change domestic policy in response to US economic conditions, it's going to have global consequences."

The G-20 heeded calls from emerging-market countries to guard against shockwaves when US growth is secure enough for the Federal Reserve to cut back on its bond buying, according to the statement. It also repeated that nations should avoid competitive currency devaluations.

Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging-market currencies and bonds since G-20 finance chiefs last met in April. The dollar fell for a second week versus most major peers.

Bernanke's reassurance
Fed Chairman Ben S Bernanke said the central bank wouldn't slow its monthly bond-buying programme unless warranted by economic conditions. Policy makers also sought to assure investors that the Fed will hold down the benchmark interest rate after ending bond buying.

Treasury 10-year yields fell 10 basis points, or 0.10 percentage point, to 2.48 per cent this week in New York, Bloomberg Bond Trader data showed. This week's drop, combined with a 16 basis-point decline the previous five days, was the biggest back-to-back decrease since the period ended August 31.

A US Treasury Department official said the G-20 recognised that financial-market volatility has returned to normal. The official acknowledged a lot of interest in US monetary and fiscal policy, while reiterating Washington's call to do more to help the Euro region emerge from recession.

'Proper manner'
The improving US economy means a shift in Fed policy is coming and it will need to take place "in the proper manner," according to Indonesian Finance Minister Chatib Basri.

"The question is about the pace," he said in an interview. "Of course we have to wait for what will happen in the next couple of months."

Global yields surged and equities fell after Bernanke signalled the US central bank may start tapering its monthly stimulus programme this year. US 10-year yields, which climbed 36 basis points in June, have pared increases over the past two weeks as Bernanke eased those concerns in recent appearances.

On July 18 he said it was "way too early to make any judgement" about starting tapering in September. The previous day, he said the Fed's quantitative easing is "by no means on a preset course" and may be reduced or expanded if needed, depending on economic conditions.

"We've all learned something from this," Bank of Canada Governor Stephen Poloz said. A certain amount of reaction "is inevitable. You have to be mentally prepared for that and continue to emphasise that message and be very clear".