Central bankers warn of market turbulence as rates rise

Global central bankers said financial markets could suffer a bout of turbulence - again - when they began to withdraw monetary stimulus.

Janet Yellen and William Dudley of the United States Federal Reserve, Mexico's Agustin Carstens and Bank of England governor Mark Carney were among those to use a Paris conference of policymakers to talk about a potential fallout from the eventual shift from record-low interest rates used to revive growth since the global financial crisis in 2008.

"Normalisation could lead to some heightened financial volatility," Yellen told the gathering. Carney said "the transition could be bumpy".

The comments suggest central bankers are trying to prepare better for the global effects of any withdrawal than in 2013, when then chairman Ben Bernanke unexpectedly signalled the Fed could soon start reducing bond purchases. That pushed up yields and rattled investors worldwide in the so-called taper tantrum.

Fed chairman Yellen and Dudley, the president of the Fed Bank of New York, recognised the importance of US officials being clear in their plans.

"The Fed will strive to clearly and transparently communicate its monetary policy strategy in order to minimise the likelihood of surprises that could disrupt financial markets," Yellen said.