The Qatar Central Bank (QCB) Monday said the global slowdown has led to "significant" interest rate "distortion" and that the conventional gauge as gross domestic product (GDP) has proved to be less useful in the crisis time, thus needing more reliable indicator that can better predict the behaviour of an economy.
Addressing the opening session of the two-day virtual conference on challenges facing the central banks in 2020, QCB Governor HE Sheikh Abdullah bin Saoud al-Thani also said the policy response to the Covid-19 will turn out to be the blueprint for the climate protection policies.
One year into the pandemic, the global growth appears to be "uncertain" after showing signs of recovery in the beginning of this year, he told the inaugural annual conference of the Qatar Centre for Global Banking and Finance at King's Business School, London.
In this regard, Sheikh Abdullah quoted a report of the International Monetary Fund that hinted that growth will rebound to 6% in 2021, after taking into account the concerted efforts on the vaccination and support measures.
The second wave "is proving to be a significant threat" for the holistic recovery," he said, adding in this evolving situation, the growth expectations primarily depend on the continuation of support measures.
In this context, Sheikh Abdullah said Qatar and the QCB have taken "proactive" policies, including the fiscal support of $21bn or 14% of 2020 GDP, to support the economy.
These measures were introduced in March 2020 during the initial days of the pandemic. The government had come out with national guarantee programme, being administered by the Qatar Development Bank and executed individually by the local banks.
Highlighting that the global slowdown has led to "significant" interest rate distortion; he said this in turn has affected the savings and investment behaviour of the households and firms.
As the economies recover and the policymakers plan appropriate exit strategies, the key question that is being directed towards the central banks is “how better can we apply our policy tools to improve our economic and financial resiliency”, he said.
Sheikh Abdullah said the conventional indicator such as GDP have proved to be less useful in the crisis environment.
"This has raised the need for fast moving and more reliable indicator that can better predict the behaviour of the economy, especially during the challenging times," he said.
Sheikh Abdullah said the Covid-19 pandemic has led to widespread acceptance of digitalisation and under these circumstances, the pandemic has shown that the bank supervision needs to be more technology driven than it was in the past.
Stressing that the policy response to the Covid-19 will turn the blueprint for climate protection policies; Sheikh Abdullah said the central banks across the world have been increasingly facilitating to green economy through their policies.
"As these policy measures gain momentum, there is a need for high performance, low carbon and cheap sources of energy that permit climate friendly growth," he said, adding the role and relevance of these measures would become important concerns for the central banks in the near future.
Professor David Aikman, Director of the Centre, said while vaccines may be providing a light at the end of the tunnel for high-income countries, it has seen sharp and deep recessions around the world.
"The massive support packages governments have put in place will affect public finances for decades to come, raising significantly the policy challenges facing central banks," he said.
Against this backdrop, he said it is also now clear that the financial system has a vital role to play in supporting the recovery, and central banks would be an important player in this endeavour.