IMF says global financial instability increasing

The International Monetary Fund's steering committee said on Saturday that global financial instability has increased since last autumn and monetary policy should be flexible and aim for medium-term price stability.

"In the advanced economies, monetary policy should continue to aim at medium term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn," the International Monetary and Financial Committee said in a communique after its spring meeting in Washington. "Fiscal policy can also play a useful countercyclical role."

The IMFC said world economic growth has slowed and growth prospects for 2008 and 2009 have deteriorated.

"Risks to the outlook come from the still unfolding events in financial markets and from the potential worsening of housing and credit cycles. Inflationary risks - notably from higher food, energy, and other commodity prices - have also risen," the IMFC said.

The fund called for policymakers to respond by supporting economic activity while making sure inflation is under control. In the United States, temporary fiscal easing will help counter downside risks to growth, it said.

The IMFC said emerging market and developing countries "have so far continued to grow strongly and show resilience in the face of the ongoing financial crisis, though their growth prospects have moderated and inflation risks have increased."