Gita Gopinath, First Deputy Managing Director, International Monetary Fund. file | Photo Credit: Reuters
Price pressures appear to be elevated in many economies, including emerging markets, and upside inflation risks loom large, said Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF)Stating that central banks should keep their monetary policies tight.
Ms. Gopinath was addressing the annual conference of the Central Bank of Brazil in Brasilia on 17 May.
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“Markets are probably too optimistic about easing inflation in emerging markets. Despite the encouraging signs, I am concerned that price pressures remain in many economies and upside risks to inflation remain significant,” he told the conference. is big.”
Therefore, Ms. Gopinath said that central banks must persevere in keeping policies tight and recognize that insufficient monetary tightening could lead to more painful measures now – one more painful than the high inflation period of the 1970s. Lessons that apply so much today.
“Fiscal restraint can help support the fight against inflation by central banks. And financial tools – used judiciously – can improve trade-offs in the face of obvious financial stress.”
Ms. Gopinath emphasized on the fact that the challenges are global, but are greater for emerging markets. Therefore, it is important for emerging market authorities to refine and strengthen their monetary, fiscal and financial policy frameworks.
However, there is a silver lining for emerging markets as they have so far proved resilient to the tightening and tightening of their own policy by advanced economies, where rates rose at their fastest pace in several decades.
The US central bank’s current policy rate, now in a target range of 5.0-5.25, is the highest it has been in many years, and notably, it was near zero in the early part of 2022. Increase in interest rates generally helps in cooling the demand side of the economy and thus helps in managing inflation.
Ms. Gopinath said growth in emerging markets was strong last year and is expected to be strong this year, while capital outflows have been limited.