Policy exit must be prompt: BIS

BASEL, Switzerland (Reuters) - Central banks and governments must withdraw their massive economic stimulus in time to avoid sowing the seeds of inflation and new imbalances, Bank for International Settlements chief Jaime Caruana said on Monday.

"Once the recovery becomes evident, the stimulus will have to be withdrawn promptly and markets allowed to regain their role in allocating resources," the BIS general manager told the bank's annual general meeting.

"Delaying the exit would perpetuate competitive distortions and risk generating inflationary pressures or sowing the seeds of the next imbalance. Implementing a timely exit will not be easy," he said, according to the text of his speech.

While some technical problems could prove difficult to resolve, the key challenge was to choose the proper timing and speed of the exit, Caruana said.

"True, one risk is exiting too early," he said. "But experience suggests that the bigger risk is exiting too late and too slowly or, in the case of fiscal policy, not exiting at all."

(Reporting by Sven Egenter; editing by David Stamp)