Central banks navigate "difficult balancing act" as rates fall, says IMF chief
Shafaq News/The Director of the International Monetary Fund (IMF), Kristalina Georgieva,stated on Friday that central banks worldwide are navigating a "difficultbalancing act" as they begin lowering interest rates in response todecreasing inflation.
Speakingalongside European Central Bank (ECB) President Christine Lagarde inWashington, Georgieva emphasized the challenges that central banks face inmaintaining economic stability while adjusting rates.
In 2024,several central banks, including the US Federal Reserve and the ECB, havestarted cutting rates. The US Federal Reserve lowered its benchmark lendingrate by half a percentage point on Wednesday to stimulate demand, followingsimilar actions by the ECB, which had already initiated rate reductions earlierin the year.
"Centralbanks face a difficult balancing act," Georgieva said. "They mustensure that inflation sustainably returns to target and remains there, whileavoiding the risk of excessively tight policies." She further commented onthe global economic situation, noting, "While clearly weaker than we wouldhave wanted, economic activity has been remarkably resilient. While inflationis retreating, rates are going down. Recession appears to be unlikely."
The ECB, inparticular, has cut its rates by a quarter percentage point twice in 2024.Meanwhile, the Bank of England decided on Thursday to keep its rates unchangedafter making just one cut, as inflation in the UK remained higher thanexpected.
ECBPresident Christine Lagarde affirmed the impact of the bank’s policies, saying,"determined policy actions have successfully kept inflation expectationsanchored." She expressed optimism that inflation is still projected toreach the bank's target of two percent by mid-2025. However, she cautioned thatuncertainties remain, adding, "But is the uncertainty gone? No, there isstill plenty of that around."
