BAKU, Azerbaijan, July 27. The monetary policy tightening by central banks poses high financial risks, Pierre-Olivier Gourinchas, Economic Counsellor and Director of the Research Department at the International Monetary Fund (IMF) said during the press conferences timed to the World Economic Outlook’s publication, Trend reports.
“Interest rates are rising faster than expected. With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers. Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them. Although central banks should stay in course with it in order to mitigate inflation risks,” he said.
According to Gourinchas, although, emerging market (EM) economies have somewhat improved the framework, and the instruments to guarantee the financial stability.
“Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending. Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary. Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices,” he noted.
Meanwhile, according to the outlook, the inflation rate in 2022 is expected at 6.6 percent (0.9 percent up) in advanced economies, and 9.5 percent (0.8 percent up) - in EM and developing economies.
“Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances. In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent,” the report said.
Follow the author on Twitter: @mariiiakhm