IMF chief cautions on inflation, foresees continued easing in 2024

International Monetary Fund (IMF) Managing Director Kristalina Georgieva stressed on Thursday that while inflation is moderating faster than expected, it has not yet been completely eradicated. Speaking at an event hosted by the Atlantic Council think tank, Georgieva urged central bankers to meticulously gauge their decisions regarding interest rate cuts based on incoming data.

Georgieva noted that headline inflation for advanced economies declined to 2.3 per cent in the final quarter of 2023 from 9.5 per cent 18 months earlier, with expectations for the downward trend to persist throughout 2024. She highlighted that this trajectory could pave the way for central banks in major advanced economies to initiate rate cuts in the latter half of the year, although the timing and pace may vary.

Highlighting the importance of central bank independence, Georgieva cautioned against premature rate cuts that could potentially lead to unexpected inflationary pressures, necessitating further monetary tightening. Conversely, delaying rate cuts for too long could dampen economic activity.

Georgieva previewed the upcoming World Economic Outlook, indicating a marginal strengthening of global growth, driven by robust activity in the United States and many emerging market economies. However, she emphasized ongoing concerns, citing geopolitical tensions and the need to anticipate unforeseen challenges.

Despite the resilience of the global economy supported by strong labour markets and easing supply chain disruptions, Georgieva reflected on the need for vigilance. She highlighted the substantial global output loss since the onset of the COVID-19 pandemic, particularly impacting vulnerable countries.

Georgieva remarked on the varying pace of economic recovery across regions, with the United States experiencing a robust rebound, while the euro area's recovery is more gradual due to lingering effects of high energy prices. Among emerging market economies, countries like Indonesia and India are faring relatively better, but low-income countries continue to face significant challenges.

Looking forward, Georgieva stressed on the importance of foundational reforms to restore price stability, enhance fiscal resilience, and stimulate growth. She advocated for policies aimed at strengthening governance, reducing bureaucratic barriers, boosting female labour force participation, and improving access to capital, which could significantly uplift output.

(With Reuters inputs)