Central banks around the world need to coordinate on monetary policy in order to combat shared challenges but they also need to act to prevent "monetary policy spillovers," European Central Bank (ECB) President Mario Draghi said on Tuesday.
"The international dimension of monetary policy is becoming more pertinent, since the common factors affecting central banks are increasing," Draghi said.
Draghi told an ECB forum in Sintra, Portugal that although central banks faced common challenges such as low inflation, policies needed to be in place to counteract "destabilizing" monetary policy "spillovers."
"Operating against persistent headwinds arising from abroad has forced central banks to deploy monetary policy with more intensity to deliver their mandates, and that in turn results in higher financial stability risks and spillovers to economic and financial conditions in other jurisdictions," he said.
"Monetary policy has inevitably created destabilizing spillovers as well, especially when business cycles have been less aligned. The large exchange rate fluctuations between major currencies, and the pressures some emerging economies have experienced from capital flows, are testament to that," he said.