The director of the International Monetary Fund (IMF), Kristalina Georgievastated this Thursday that central banks must not “back down” in the face of “persistent” inflationalthough it entails risks for the financial sector
“We do not foresee, at this time, that central banks will stop fighting inflation”, because “it is still there and as long as it does not fall significantly (…) they must continue raising rates”, he said.
“They have to stay the course in a much more difficult and complex environment“, he claimed.
The measures of the central banks have exposed “the vulnerabilities of the financial sector”, either in Switzerland or in the United States, acknowledged the head of the IMF, but that means that “must do more to ensure financial stability” and at the same time reduce inflation.
The rise in rates, which oscillate between 4.75% and 5% in the us federal reserve (Fed), bankrupted several regional banks in the United States.
If the “risks become significant, then central banks would have to decide to what extent fighting inflation takes precedence over financial stability,” Georgieva stressed, but “we are not there yet.”
On the other hand, the world economy must face the risk of fragmentationestimated the managing director, due to trade tensions between the United States and China.
“We are coming out of a period where investment allocation was determined by cost, but that is no longer the case. In the United States, and elsewhere, national security and security of supplies have become essential” in decision-making, acknowledges Georgieva, who believes this trend will continue.
“The question is how far should they go,” he said, adding that it was possible to protect both “without completely undermining the foundations for growth.”
According to the IMF, the trade war cost 0.4% of world growth last year, “that is, 400,000 million dollars less”.
“The resolution of the debt issue obliges the countries to work together. The same goes for climate change: we will not succeed if we do not work together,” Georgieva stressed.
The IMF’s role is to “provide a table around which all countries can sit and talkeven on controversial issues but that benefit everyone”.
For the foreseeable future, the shocks caused by repeated crises will likely push the world into one of the lowest growth periods in decades, below 3% in 2023.
The fund will publish an update to its forecasts for 2023 and the medium term on Tuesday.
“We expect growth of around 3% in the next five yearsour weakest medium-term outlook since 1990″, said the head of the institution in a speech.
Georgieva also expressed concern about the state of public finances in most countries, at a time when debt soared almost everywhere in the world due to the effects of the pandemic and the Russian invasion of Ukraine.
There are challenges ahead, such as promoting the ecological transition of emerging countries, which will require “our richest members to help”, especially since low-income countries have difficulties accessing the debt market, he said.
These nations are often in financial difficulties, which has led the IMF to significantly increase the funds at their disposal to $300 billion in recent months.
This could continue because “almost 15% of low-income countries already have debt difficulties and 45% are close” to having them, Georgieva insisted.
(With information from AFP)
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