MNI: Avoid Early Rate Easing As Soft Landing Emerges, IMF Says

Central banks must stick with "higher for longer" interest rates even amid glimmers of a soft landing for the global economy, IMF Managing Director Kristalina Georgieva said in a speech Thursday ahead of annual meetings in Morocco.

"Fighting inflation is the number one priority," she said, echoing a message the Washington-based fund has given for most of this year. "It is paramount to avoid a premature easing of policy, given the risk of resurging inflation."

Governments also need tight fiscal policy that rebuilds capacity to tackle future risks like climate change, sluggish global growth and a potential sharp tightening of financial conditions, she said during a speech in Abidjan, Cote D’Ivoire. (See: MNI INTERVIEW2: Ex-BOC Chief Says Neutral Rate Is Rising)

"As you will see from our updated forecast next week, the current pace of global growth remains quite weak, well below the 3.8% average in the two decades before the pandemic. And looking ahead over the medium term, growth prospects have weakened further," she said.

SEEKING QUOTA BOOST

The IMF said in July core inflation will rise 5.1% across advanced economies in 2023 and boosted the 2023 world growth forecast 0.2pp to 3%. The fund also said inflation will remain above target this year in 96% of nations with such a goal, and in 89% of those nations next year.

The economy fared better than expected in the first half of the year to boost the chance of a soft landing "but we can’t let our guard down," Georgieva said. The U.S. is the only major economy to restore output to its pre-pandemic path while China has lagged expectations, according to IMF estimates.

The IMF is also asking member nations to boost the fund's quota resources, the managing director said.

MNI will host a fireside chat with Tobias Adrian, Financial Counsellor of the International Monetary Fund and Head of their Monetary and Capital Markets Department, on Oct. 25. Details can be found here.