MNI BRIEF: IMF Urges Further ECB Tightening To Tame Inflation

The euro area will see growth pick up slowly throughout 2023 and 2024 and inflation, although peaked, will remain above the 2% target, the IMF conclude in the latest Article IV report.

With inflation looking stickier than previously thought, the IMF recommends monetary policy should continue to tighten and maintain a tightening bias. The latest ECB projections, published Thursday alongside the latest 25 bps hike in benchmark rates, point to inflation at 2.2% at the end of the current forecast horizon. (MNI WATCH:ECB Signals More Hiking, Raises Inflation Projection)

"Recent policy rate hikes have shifted market rates up and brought the monetary policy stance into contractionary territory. Going forward, the inflation outlook and the high uncertainty regarding inflation persistence suggest that a more restrictive stance than at present, maintained over sustained period, will be needed to keep inflation expectations anchored and return inflation to target in a timely manner," the IMF concludes.

However, the IMF said a "continued flexible and data-dependent approach to monetary policy decisions remains appropriate", providing flexibility to change course should incoming data indicate a need.