Faced with inflation “persistent”, central banks should not “go back” even if it means risks for the financial sectorsaid Thursday the director of the International Monetary Fund (IMF), Kristalina Georgieva, in an interview with AFP.
“We do not foresee, at this moment, that the 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 said.
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 “they must do more to guarantee financial stability” and at the same time At the same time reduce inflation.
The rise in rates, which oscillate between 4.75% and 5% at the US Federal Reserve (Fed), led to the bankruptcy of several regional banks in the United States.
If the “Risks become significant, then central banks would have to decide to what extent the fight against inflation takes priority over financial stability,” Georgieva stressed, but for the moment “we are not there.”
On the other hand, the world economy must face the risk of fragmentation, estimated the managing director, in particular due to the trade tensions between the United States and China.
“We are emerging from a period in which the allocation of investments was determined by costs, but this is no longer the case. In the United States, and elsewhere, national security and that of supplies have become essential” in the shot decisions, 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 last year 0.4% of world growth, “or 400,000 million dollars less.”
But, Georgieva stresses, “resolving the debt issue forces countries to work together. The same is true of climate change: we won’t be successful if we don’t work together.”
The IMF’s role is to “provide a table around which all countries can sit and talk, even on controversial issues but to the benefit of all.”
In the immediate 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 years, our 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 public 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.
Source: Ambito