Policymakers in advanced economies should use all available tools to boost growth, International Monetary Fund Managing Director Christine Lagarde said on Friday, calling for bold action to weather a dangerous new phase of recovery.
Speaking in London, Lagarde also welcomed a $447 billion plan presented by President Barack Obama to boost a sluggish economy and create jobs.
Lagarde said countries facing market pressures must press ahead with urgent fiscal consolidation, while there was scope for slower action in other countries not at the mercy of market forces.
Economic policymakers had to act with conviction and urgency in supporting a faltering global economy, she said, giving her blessing to further quantitative easing.
Policymakers should stand ready, as needed, to take more action to support the recovery, including through unconventional measures, Lagarde said.
Financial markets are watching major central banks keenly for signs they are ready to embark on more stimulus and a Morgan Stanley research note ahead of a G7 meeting speculated bankers could announce some kind of coordinated monetary easing.
But while decisions by the European and British central banks on Thursday to keep interest rates unchanged accentuated the gloom in Europe, neither indicated that a move was imminent.
Wall Street also closed sharply lower on Thursday after Federal Reserve Chairman Ben Bernanke gave no indications of new stimulus in a keenly awaited speech.
Lagarde was due later on Friday to join finance ministers and central bankers from the Group of Seven wealthy nations at a meeting in the French city of Marseilles.
She said that meeting and the IMF annual gathering in Washington should help nations to tailor policies to tackle the specific economic challenges they faced.
For the advanced economies, there is no question that fiscal sustainability must be restored through credible consolidation plans, she said.
But we also know that consolidating too quickly will hurt the recovery and worsen job prospects. So the challenge is to find the pace of adjustment that is neither too fast, nor too slow.
Monetary policy also has a role to play in the advanced economies. Broadly speaking, it should remain highly accommodative, as the risk of recession outweighs the risk of inflation, she said.
Lagarde also said eurozone countries must implement measures agreed on financing in July and warned that some of Europe's banks would need more capital.
The road ahead may be rocky, but a way forward exists-if we act now. With each country playing their part, we can identify the actions needed to achieve strong, sustainable and balanced growth, she said.
(Reporting by Keith Weir; editing by Patrick Graham)