The International Monetary Fund (IMF)’s steering committee, yesterday, said that the global economy was recovering faster than expected from COVID-19 crisis, but warned that a spike in interest rates could be especially painful for emerging economies. In its communique, the International Monetary and Financial Committee (IMFC) stressed the importance of accelerating distribution of COVID-19 vaccine around the world, and pledged to strengthen international cooperation. “Elevated financial vulnerabilities could pose risks, should global financial conditions tighten swiftly,” the 24-member committee said. “The crisis may cause extended scarring and exacerbate poverty and inequalities, while climate change and other shared challenges are becoming more pressing,” they added.
IMF Managing Director, Kristalina Georgieva, said a stronger growth outlook for the United States had positive spillovers for the world, but some countries struggling to reopen their economies could suffer if faster growth leads to quick increases in interest rates. At an economic forum during IMF and World Bank Spring Meetings, she admonished Federal Reserve Chair, Jerome Powell, to communicate clearly the Fed’s view its view that inflation remains under control, saying markets have adopted a more “exuberant” view towards inflationary expectations, pushing bond yields higher. IMF is forecasting that U.S.
inflation will be 2.25 per cent in 2022, only slightly above the Fed’s two per cent target. “This is why the very careful approach that Chair Powell is taking to communicating clearly is very helpful. Both to hold these expectations in the United States from being lifted up and for the rest of the world to be clear around monetary policy in the United States,” she said.