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BRICS worried at excess liquidity

March 29, 2012

NEW DELHI, March 29: The BRICS group of emerging economies said on Thursday it was concerned by excess liquidity in the global financial system caused by the policies of the rich world.

The central banks of the developed economies have slashed interest rates and pumped billions of dollars into the banking system to try to stimulate lending and economic growth.

“Excessive liquidity from the aggressive policy actions taken by central banks to stabilise their domestic economies have been spilling over into emerging market economies,” the emerging bloc declared after a summit.

The leaders of Brazil, Russia, India, China and South Africa met in New Delhi on Thursday for their fourth summit.

“We believe that it is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth that create jobs,” they added.

“We draw attention to the risks of large and volatile cross-border capital flows being faced by the emerging economies.”

Emerging markets worry that the new cash pumped into the banks of the rich world will slosh around in the global system and end up being used to buy assets in the developing world.

This creates a risk of asset bubbles in recipient countries and volatile changes in exchange rates.

The BRICS alliance — a key non-Western grouping that accounts for about 20 per cent of the world economy — also said it remained “concerned” about global growth.

“We are concerned over the current global economic situation,” the group said.

“While the BRICS recovered relatively quickly from the global crisis, growth prospects worldwide have again got dampened by market instability, especially in the eurozone.”—AFP