"Inflation Must Not Become an Unbridled Train" IMF Managing Director Supports Interest Rate Hike

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Seulgina Jo] "We cannot let inflation become a runaway train."

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), expressed concerns on the 13th (local time) about soaring inflation worldwide and supported the tightening measures taken by central banks in various countries. She also urged consistent actions, emphasizing that fiscal policies should not undermine monetary policies aimed at price stability.

At a press conference during the IMF-World Bank (WB) Annual Meetings held in Washington DC, Managing Director Georgieva stated, "If price stability is not restored, it will undermine growth prospects," emphasizing that curbing inflation must be a priority. She pointed out, "While raising interest rates comes at a cost to growth, if rates are not tightened enough to control inflation, higher rates will be maintained for longer, causing greater damage to growth."

This aligns with the context of the minutes from the September FOMC regular meeting released by the Federal Reserve the previous day, where many participants expressed concerns about inflation becoming entrenched and noted that "the cost of taking too little action to reduce inflation may be greater than the cost of taking too much action."

In particular, regarding the U.S. core Consumer Price Index (CPI) released that morning, which rose at the fastest pace in 40 years, Managing Director Georgieva diagnosed, "A scenario where the U.S. fails to control inflation for a long time is bad not only for the U.S. but also has ripple effects worldwide." She emphasized, "We cannot let inflation become a runaway train. It is bad for growth, bad for people, and especially harmful to the poor."

Furthermore, she stressed that fiscal and monetary policies must work together to respond to inflation. She warned, "When monetary policy is applying the brakes, fiscal policy should not be stepping on the accelerator. That would be very dangerous," cautioning against the possibility of countries pursuing expansionary fiscal policies. She explained that support policies aimed at alleviating living cost pressures for low-income groups should be implemented while maintaining a tightening stance in line with monetary policy. She also expressed concerns about policy mistakes, stating, "In these more complex times, the cost of policy errors or poor communication of policy intentions is very high."

Regarding the recent financial market turmoil originating from the UK, she reiterated the call for consistent fiscal policies in the UK and other countries. Managing Director Georgieva confirmed, "During the Annual Meetings, I had a very constructive meeting with Kwasi Kwarteng, UK Chancellor of the Exchequer, and Andrew Bailey, Governor of the Bank of England (BOE), where we discussed the importance of policy consistency."

Georgieva pointed out, "Our message to the UK and everyone else is that fiscal policy should not undermine monetary policy," adding, "This could make monetary policy more difficult, requiring higher interest rates and tighter financial conditions." She emphasized, "Therefore, we must not prolong the pain and must clearly implement consistent measures."

Alongside this, regarding the IMF’s recent downward revision of the global growth forecast to 2.7% for next year, she said, "As outlined in the World Economic Outlook, there is a 25% chance that economic growth next year will fall to a historically low level of 2%." She explained, "Due to rising prices and declining real incomes, even if the economy grows, many people will feel as if it is a recession." Earlier, the IMF had lowered growth forecasts in its World Economic Outlook report and predicted that countries accounting for one-third of the global economy will experience at least two consecutive quarters of contraction either this year or next year.

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