“The worldwide dimension of monetary policy is becoming more pertinent, since the common factors affecting central banks are increasing”, Draghi said. This “in turn leads to higher exchange rate volatility and risk premia [which] has to be countered with more expansionary monetary policy, increasing spillover effects”.
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“Monetary policy has inevitably created destabilizing spillovers as well, especially when business cycles have been less aligned”.
The heads of the European Central Bank, Bank of England and US Federal Reserve have cancelled a panel discussion scheduled for Wednesday after Britain’s vote to leave the European Union.
“This is not so much a result of the measures central banks have employed, but rather of the intensity with which they have had to be used”, he added.
According to Draghi, formal policy co-ordination may not be needed, but there was a case for alignment of policies.
Draghi, who was opening the ECB’s annual forum on central banking in Sintra, Portugal, will fly to Brussels on Tuesday, where he is expected to brief European leaders about the impact of the United Kingdom vote on the euro zone at a two-day European Council meeting.
Draghi believes there is a need for policy alignment between the European Central Bank and governments to tackle prolonged low inflation and a stagnant recovery.
There is great expectation about what they will say after Janet Yellen having warned – just a few days before the referendum – of the “significant repercussions” of a “Brexit” for the U.S. and global economy.
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Countries might take different actions but “the sign of the effect on global growth needs to be positive”, he said. “It is simply the new reality we face”.
