IMF Managing Director: "US Interest Rate Hikes Will Pour Cold Water on Economic Recovery in Some Countries"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), stated on the 21st (local time) that the U.S. interest rate hikes could "pour cold water" on the economic recovery of some countries.

According to economic media CNBC and others, Georgieva made these remarks while participating virtually in the 'Davos Agenda 2022' hosted by the World Economic Forum (WEF) on the same day.

She viewed that the U.S. interest rate hikes could cause significant problems for countries with a high proportion of dollar-denominated debt. Since the U.S., suffering from the highest inflation in 40 years, may accelerate tightening faster than market expectations, capital outflows centered on emerging markets and bubble collapses due to interest rate hikes could become visible. She advised, "Act now. If you can extend maturities, please do so."

Additionally, Georgieva emphasized the importance of the U.S. central bank, the Federal Reserve (Fed), providing clear policy signals to mitigate these shocks.

She expected the global economy to continue its recovery trend. However, she explained that growth momentum is being lost due to increases in COVID-19 cases, rising prices, and debt. While the global economic recovery is expected to continue, she diagnosed that "the momentum is somewhat weakening."

Janet Yellen, U.S. Treasury Secretary, recently projected that the U.S. inflation, at its highest level in 40 years, will ease and that the economy will show solid growth of 3.3% annually. Regarding concerns about inflation, she said they are "reasonable," but also noted, "It is important to recognize that experts expect inflation to improve significantly."

She referred to the recently passed infrastructure package bill and the 'Build Back Better' bill submitted to Congress, evaluating that "we have entered a path of progress." Furthermore, she reaffirmed the existing stance that although the U.S. government debt relative to gross domestic product (GDP) is historically high, it is sufficiently manageable due to low interest rates.

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