The International Monetary Fund has raised a warning flag about the risks of ultra-loose monetary policy. In its Global Financial Stability Report, the IMF worries that excessive easing may lead banks to postpone the necessary adjustment after the excesses of the past. There is also a risk that cheap money could prop up new bubbles. While policy makers should monitor both threats via prudential regulation, it is not yet time to tighten monetary policy.

The case for maintaining low interest rates and for continuing to pursue unconventional monetary policy is strengthened by another document released by the IMF this week – its Global Economic Outlook. The fund has downgraded its economic forecast for global growth in 2013, cutting it 0.2 percentage points to 3.3 per cent. In the three-speed world described by Christine Lagarde, IMF managing director, developed economies are lagging behind emerging markets. While the US is showing promising signs of buoyancy, the EU and Japan look stuck.

The accusation that should be levelled at central bankers around the world is that they did too little, too late – not too much. True, the Federal Reserve has acted forcefully, unleashing three rounds of quantitative easing and committing to keep monetary policy loose until the recovery is in full swing. But it has taken the Bank of Japan decades to understand that it needed a bazooka, not a water pistol, to fight deflation. Mario Draghi’s vow to do “whatever it takes” to save the euro has reassured markets, but the European Central Bank stubbornly keeps its policy rate at 0.75 per cent.