Managing Director of International Monetary Fund (IMF), Kristalina Georgieva, has urged Central Banks globally against rushing to relax their current policy measures aimed at curbing surging inflation rates of the economies even with the Federal Reserve signalling its policy pivot next year.
Georgieva, was quoted to have given the warning in a report by Bloomberg News, noting that “sometimes countries prematurely declare victory and then inflation gets more entrenched and the fight becomes harder. Don’t say hop before you jump.”
The IMF chief was reported to have aligning her views with those of the European Central Bank (ECB) President, Christine Lagarde, and Bank of England (BoE) Governor, Andrew Bailey, to give the warning after the Fed jolted markets Wednesday by indicating its policymakers are turning their attention to cutting borrowing costs in 2024.
She indicated that her advice applied to the case of the Bank of Korea after she met with Governor Rhee Chang-Yong.
According to her, other central banks should consider their situations as what the Fed did was correct to signal its pivot based on US data.
The IMF boss clarified: “Now that inflation is decreasing and decelerating but at different points in different countries, central banks have to calibrate their actions according to domestic conditions.”
Georgieva pointed out that the fight against inflation was in its “very last mile,” advising the Bank of Korea (BOK) not to move any faster along its policy course than data allow.
According to Bloomberg, the Federal Reserve initiated the latest move toward reversing the steepest interest-rate hikes in a generation after containing an inflation surge so far without a recession or a significant cost to employment.
While Chairman of US Federal Reserve, Jerome Powell, said Wednesday that policymakers were prepared to resume rate increases should price pressures return, he and his colleagues issued forecasts showing that a series of cuts would be likely next year.
Powell said the topic came up at their meeting, where the Fed decided to keep rates at a 22-year high for a third straight time.
Moreover, Powell’s lack of pushback during his press conference against growing investor expectations for 2024 rate cuts helped spark a massive rally in Treasuries and sent the Dow Jones Industrial Average of stocks to a record high.
Less than two weeks after saying it would be “premature” to speculate on the timing of rate cuts, Powell said officials were starting to turn to that question.
Powell said: “That begins to come into view and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today,”
Officials decided unanimously to leave the target range for their benchmark federal funds rate at 5.25% to 5.5%, the highest since 2001.
Policymakers did not express interest in further interest-rate hikes in their projections for the first time since March 2021, based on the median estimate.
Updated quarterly forecasts showed Fed officials expect to lower rates by 75 basis points next year, a sharper pace of cuts than indicated in September while the median expectation for the federal funds rate at the end of 2024 was 4.6%, individuals’ expectations varied widely.
Commenting on the Fed policy, an economist with LH Meyer/Monetary Policy Analytics, Derek Tang said: “His presser certainly had a tone of finality to it. He and the whole FOMC saw no need to push back with the dots against the market suspicion of earlier and deeper easing.”
