G20 warns of financial volatility risk as central banks diverge

By Jan Strupczewski

WASHINGTON (Reuters) - The Group of 20 leading economies was set on Friday to warn of a heightened risk of financial volatility as the monetary policies of major central banks begin to go their separate ways.

"In an environment of diverging monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers," G20 finance ministers and central bankers said in a draft communique.

"We will continue to monitor financial market volatility and take necessary actions," the draft communique said.

The language echoed other recent G20 statements, and was evidence of continued concern over potential financial market and economic disruptions as the U.S. Federal Reserve moves toward an interest rate hike, even as the European Central Bank and Bank of Japan keep the monetary spigots wide open.

In the draft communique, prepared for consideration at a ministerial meeting on Friday, the group of advanced and emerging nations welcomed the strengthening in some key economies, but noted the uneven nature of global growth and said risks remained.

"There are challenges, including volatility in exchange rates and prolonged low inflation along with negative interest rates, sustained imbalances and geopolitical tensions," the draft said.

The nations pledged to pursue fiscal policies "flexibly" to support growth, and cited the need for continued easy monetary policies in many advanced nations.

They also said they reaffirmed their previous exchange rate commitments and would resist trade protectionism.

In the draft communique, the finance ministers and central bankers said structural reforms were "essential" to ensure strong growth, and said they remained committed to the growth strategies they had previously outlined.

They also said they would develop "concrete country specific" investment strategies with an eye toward presenting them at a leaders' summit later this year.

(Reporting by Jan Strupczewski; Writing by Tim Ahmann; Editing by Chizu Nomiyama)