The head of the IMF warned that inflation and emergence of new Covid-19 variants is threatening global growth prospects, Kristalina Georgieva said Thursday in Washington, DC.
“Even before the arrival of this new variant, we were concerned that the recovery, while it continues, is losing somewhat momentum y because of slowdown in the two countries that are engines for growth in the US and in China, and because the Delta variant proved to be a disruptors. It caused some additional delays in production. So let's be very frank. A new variant that may spread very rapidly can dent confidence. And in that sense, we are likely to see some downgrades of our October projections for global growth,” Georgieva answered while appearing at the Reuters NEXT global streaming event.
Earlier in the day the IMF published a blog by its chief economist Gita Gopinath and head of Monetary and Capital Markets Tobias Adrian saying that it was timely and appropriate for the US to begin tightening monetary policy.
“It does flag that the Fed is now in a place where, as US Chair Powell said, slowing down asset purchases, withdrawing from asset purchases is necessary. And yes, we do believe that the path to policy rate increases may be walked faster. We were thinking before twenty-three. Now this may be twenty-two,” she said.
Georgieva answered questions from reporter Andrea Shalal about the impact of inflation, particularly on countries holding their debt in US dollars.
But she also pointed out that inflation in the US is due primarily to supply chain bottlenecks, and that is a side effect of a strong economy which in turn will have positive impact on America’s trading partners.
“For countries with high leverage, especially dollar-denominated, that any advancements on this part of policy rate increases would be very significant pressure on servicing their debt obligations. So, yes, the US (inflation is rising) for a very good reason. The US economy is doing well. Demand is pushing prices up with supply disruptions continuing does have to take these actions for the sake of sustaining a prudent macroeconomic and financial stability. As the U.S. does it, it's so important to communicate well in advance, so there are no surprises.”
See more on this event at Reuters.com.