IMF Urges Central Banks to Sustain Monetary Policy to Achieve Inflation Target

* Cautions against hasty easing measures

Ndubuisi Francis in Abuja

The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has advised central banks across the world to stay the course on monetary policy until inflation is durably brought down to targets, while closely monitoring financial sector risks.

In an article titled: ‘Weak Global Economy, High Inflation, and Rising Fragmentation Demand Strong G20 Action,’ the IMF chief executive observed that global headline inflation seems to have peaked, while core inflation has eased somewhat, particularly in India.

Central banks across the world have for months now adopted monetary policy tightening to tame inflation.
Georgieva noted that in most G20 countries – especially advanced economies, inflation remains well above central banks’ targets.
She stressed that in the fight against inflation, there were some early signs of monetary policy transmitting to activity, with bank lending standards tightening in the euro area and the United States.

“That said, policymakers should avoid “premature celebrations,” she noted, adding that lessons from previous inflationary episodes show that easing policy too early can undo progress on inflation.

“That’s why it is vital to stay the course on monetary policy until inflation is durably brought down to target, while closely monitoring financial sector risks.
“Here, clear central bank communication and financial sector oversight are needed to reduce the risk of disruptive shifts in financial conditions.
“Fiscal policy must also play its part. Tightening the purse strings after a period of pandemic-related exceptional support can support disinflation, rebuild buffers, and enhance debt sustainability, while temporary and targeted measures may be needed to help vulnerable people cope with the immediate cost-of-living crisis,” she added.

According to her, at the same time, consolidation efforts should protect growth-enhancing investments where space allows, explaining that while prospects are mixed in the near term, the medium-term outlook for the global economy remains bleak.
She pointed out that the IMF forecast for global growth over the medium term is around three per cent – well below the historical average of 3.8 per cent during 2000-19.

The IMF chief executive stated that economic fragmentation will both undermine growth and make it harder to tackle pressing global challenges, from rising sovereign debt crises to the existential threat of climate change.
She called for strong leadership from the G20 to ensure the international financial architecture is fit for purpose with a well-resourced and representative IMF at its centre.

Georgieva stated that in a more shock-prone world and at a time of fundamental transitions – from climate change and debt distress to trade tensions and economic fragmentation, the world has high expectations of international policymakers, and rightly so.
According to her, the global response must be commensurate in size to the world’s challenges.

She noted that when the G20 finance ministers and central bank governors meet in Gandhinagar, India next week, the world will be looking for joint action to address rising economic fragmentation, slowing growth, and high inflation.
“Agile multilateral support is vital to tackle common challenges posed by debt vulnerabilities, climate change, and limited concessional financing – especially for countries hit by shocks, not of their making.
“In April, the IMF projected global growth at 2.8 per cent in 2023, down from 3.4 per cent in 2022. The bulk of it – over 70 per cent – is expected to come from the Asia-Pacific region.

Yet, recent high-frequency indicators paint a mixed picture: weakness in manufacturing contrasts with resilience in services across the G20 countries and strong labour markets in advanced economies.
“At the same time, financial fragilities uncovered by tight monetary policy require careful management—particularly as restoring price stability remains a priority,” she said.

On the importance of joint action, she said “The good news is that we have seen how the international community can deliver when differences are set aside.”
She recalled that “in June, we saw the breakthrough on Zambia’s debt restructuring. That was a significant milestone for the G20 Common Framework which was borne out of efforts from the country authorities as well as both Paris Club members and other countries such as China, India, and Saudi Arabia.”
The agreement, she stressed, unlocks further financing as part of the $1.3 billion IMF arrangement agreed in August 2022.
“In addition to progress on debt restructuring for Chad, this outcome also builds on trust and better understanding among creditors and debtors ushered in through the Global Sovereign Debt Roundtable.

“But the work is not yet done. More effort is needed to accelerate the debt restructuring process through clear timelines, debt service suspension during negotiations, and improved creditor coordination on debt treatment for countries outside the Common Framework,” Georgieva said.