International Monetary Fund (IMF) Managing Director Kristalina Georgieva said central banks around the world need to be guided by macroeconomic data in deciding their monetary policy path.
She said there is a risk of “premature loosening” interest rates for central banks during this time of their monetary tightening cycle, as well as “a very tricky space of different countries being in different place in the cycle.”
“So you cannot, as it was last year, where everybody needed to tighten and you kind of synchronize policy action. You cannot do that anymore. You cannot look at the other guy and say, oh, well, they are loosening, therefore I should be loosening, or they are staying put, therefore I should stay put. So that’s a tricky part,” she told Thursday at a media round table in Washington.
Georgieva also pointed to the risk of keeping interest rates higher for longer, and that is why central banks need to pay extra attention to macroeconomic data.
“Our team has looked back in history, and the conclusion they drew is that the risk of premature easing is higher than the risk of being slightly behind, because a premature easing can reverse gains with more significant impact on confidence, both consumer confidence and investor confidence, and also anticipation for what inflation may look like in the future,” she explained.
About achieving a “soft landing” – a situation where a central bank manages to bring down inflation but avoids a recession, the IMF chief said “They now need to lend the plane smoothly. They are going to lend it, lend it in the best possible way. Not too early, not too late, move into policy easing.”
Source: www.aa.com.tr