MNI: Keep Tightening, Beware of Spillovers: IMF Chief To G20

Central bankers must keep tightening monetary policy with inflation remaining a dominant problem, IMF chief Kristalina Georgieva said Wednesday, as she signaled concern about damage to developing nations from a strong U.S. dollar and trade protectionism during the shift to greener technology.

"Bringing inflation back to target remains imperative. To get there, policymakers need to stay the course on monetary tightening," she wrote in a blog post setting priorities for G20 meetings hosted by India this week. "Aligning fiscal and monetary policies will help. Clear communication of these policy goals is vital to avoid a sudden repricing in financial markets."

The needed alignment is governments limiting fiscal stimulus to helping the most vulnerable, she said, followed by "gradual fiscal tightening to rebuild buffers and ensure debt sustainability."

Georgieva also touched on potential side effects of U.S. policies. "While the global tightening cycle is necessary to ensure price stability, policymakers must be mindful of adverse spillovers to emerging and developing economies -- including through a stronger U.S. dollar and capital outflows," she said. (See: MNI: Fed’s Peak Rate Looking Perkier As Jobs Boom-Ex-Officials)

She also said green transition plans "must be carefully designed to avoid wasteful spending or trade tensions, and to make sure that technology is shared with the developing world."

The global economy faces another "challenging year" but 2023 may mark the turning point away from the shocks of Covid and the Ukraine war, she said, reiterating forecasts for output growth of 2.9% this year and 3.1% in 2024. "Growth is still subpar and price pressures are still too high," she said.