MNI BRIEF: Investors Underplaying Inflation Risks-IMF

Investors are too relaxed about inflation risks and central banks must lean towards stronger action now to avoid a repeat of the 1970s, IMF deputy managing director Gita Gopinath said Wednesday.

Dangers remain even with emerging market economies showing improved resilience compared with past global tightening cycles, Gopinath said, noting that emerging market policymakers tended to tighten first this time.

"I’m more concerned than markets about sizeable upside inflation risks," she told a conference at Brazil's central bank. "There are few historical precedents for inflation coming down from very high levels without a significant economic slowdown."

The remarks cut against investors betting central banks will reverse course and cut rates this year even with inflation well above target. The collapse of SVB and Credit Suisse and have accentuated concern the global economy will head back into recession. (See MNI INTERVIEW: BOC Seen Cutting Rate Around Yr-End: Ex Adviser)

"There’s a strong rationale for central banks maintaining a tight policy stance and reacting aggressively to upside inflation surprises," Gopinath said.