The G20 meeting of finance ministers and central bank governors in late February reached a consensus on joint efforts to stabilize economic growth. China's central bank took the lead in lowering the bank reserve requirement ratio,and central banks of the world's developed countries successively sent out signals of further monetary easing. The European Central Bank cut its key interest rates and increased the scale of debt purchases,and the Bank of Japan held fast to its negative interest rate policy,stating it would step up monetary easing when necessary. The U.S. Federal Reserve released a dovish message on interest rate hikes (at least temporarily),and that led to speculation that there would be only two interest rate increases by the year-end,down from estimates of four not long ago. Moreover,the Reserve Bank of Australia,the Bank of Korea,and the Reserve Bank of New Zealand have all expressed similar intentions of maintaining easier monetary policy.

In the context of a continuing economic slowdown and market uncertainties,global central banks are starting a new round of monetary easing,and this is critical to stabilizing the world economy and preventing financial risks. However,there have been a number of unexpected consequences. For example,after the Bank of Japan rolled out negative interest rates and the European Central Bank cut its interest rates,the yen and the euro unexpectedly surged. Global investors showed greater aversion to risk. To truly break free from the lingering effects of the financial crisis,many countries will need to adopt a more active fiscal policy along with deeper structural reforms.

Diminishing Marginal Gains from Monetary Policy

In January,the International Monetary Fund lowered its forecast for 2016 global economic growth to 3.4% from 3.6%,while the Organization for Economic Cooperation and Development cut its estimate to 3.0% from 3.3%. Since the Fed raised interest rates late last year,US economic data have been mixed. Employment has been relatively strong but this tends to be a lagging indicator. US manufacturing and exports have been unable to hold up under the weight of a strong dollar while corporate profits have weakened. Europe and Japan have suffered significant deflationary pressure; German banks have seen new risk concerns and the yen has strengthened despite Japan's negative interest rates. This points to rising worries among global investors over risk.