Washington (AFP) – The IMF sees a greater risk to the global economy if central banks start cutting interest rates too soon than if they move “slightly” too late, Managing Director Kristalina Georgieva said Thursday.
The US Federal Reserve, the European Central Bank (ECB) and others have held interest rates elevated in recent months in an attempt to bring inflation back down toward target, following a post-pandemic surge in prices. With inflation now falling in many of the world’s advanced and emerging economies, attention has now turned to when they should start cutting rates to stimulate investment and economic growth.
“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,” Georgieva told reporters during a briefing at the International Monetary Fund in Washington. “But don’t keep it tight if you don’t have to,” she said. “So look at the data, act on the data.”
– ’50 feet above ground’ –
Georgieva’s comments come a day after the US Fed’s rate-setting committee voted to hold interest rates steady. At a press conference following the decision, Fed Chair Jerome Powell poured cold water on the idea of an interest rate cut at its next meeting in March — sending stocks on Wall Street lower. Earlier in the week, ECB President Christine Lagarde said policymakers were confident that a rate cut was coming, but would not commit to a specific date.
Georgieva told reporters on Thursday that the United States was close to achieving a so-called “soft landing,” when policymakers bring inflation back to target without triggering a recession. “If you carefully assess the Fed posture, it is one that recognizes the job is not quite yet done,” she said, adding that the timeframe being discussed by policymakers for the first rate cut was only “a matter of months,” and not much longer. “We are poised for soft landing, it’s not done,” she said. “You’re still 50 feet above ground and we know that until you land it’s not over.”
– Progress on Egypt, Argentina –
Georgieva also said the IMF had made the decision to extend its current mission to Egypt to give the team on the ground more time to finalize an expansion of its $3 billion loan agreement. The country has been struggling with a severe economic shock due to the knock-on effect of the war in Ukraine on food and energy prices — compounded by the war in Gaza and a related drop-off in revenues from maritime traffic traveling through the Suez Canal. “The problems Egypt is dealing with and complex, so it requires us to thoughtfully and thoroughly go through how best to address them,” she told reporters. “We’re making very significant progress in that regard.”
Georgieva also confirmed that the IMF was “not discussing a new program” with Argentina, which is going through a severe economic crisis, with poverty rates of 40 percent, minimal foreign exchange reserves and annual inflation running at more than 200 percent. She praised Javier Milei, the Latin American country’s new libertarian president, who took office in December on a plan to slash public spending and end decades of economic mismanagement. She called Milei a “very pragmatic president,” who was “not ideologically confined, but looking at ways in which the country can move out of this difficulty.” “What we endorse wholeheartedly is the decisiveness to tackle these problems with more ambition than we have seen in prior years, and speak truth to people,” she said.
