As inflation declines in advanced and emerging economies worldwide, the International Monetary Fund (IMF) is cautioning against premature interest rate cuts by central banks. Managing Director Kristalina Georgieva emphasized the higher risk of a global economic downturn if central banks act too soon, compared to the risks of being slightly delayed in implementing rate reductions.
The US Federal Reserve, the European Central Bank (ECB), and other central banks have maintained elevated interest rates in recent months to counter a post-pandemic surge in prices and bring inflation back toward target.
Georgieva stated during a briefing at the IMF in Washington that historical analysis by the IMF’s team supports the conclusion that the danger of premature easing outweighs the risk of being slightly behind in implementing rate cuts. She urged central banks to base their decisions on data and advised against maintaining tight policies unnecessarily.
Georgieva’s comments followed the US Fed’s decision to keep interest rates steady, with Fed Chair Jerome Powell downplaying the likelihood of an interest rate cut at the next meeting in March. ECB President Christine Lagarde indicated confidence in an upcoming rate cut without committing to a specific date.
Georgieva noted that the United States is nearing a “soft landing,” where policymakers bring inflation back to target without triggering a recession. She emphasized that the Fed’s posture recognizes the job is not yet completed, and the timeframe for the first rate cut is a matter of months.
In addition, Georgieva provided updates on the IMF’s missions to Egypt and Argentina. The IMF extended its mission in Egypt to finalize an expansion of a $3 billion loan agreement, acknowledging the country’s challenges due to economic shocks from conflicts in Ukraine and Gaza. Regarding Argentina’s severe economic crisis, Georgieva confirmed that the IMF is not discussing a new program but praised President Javier Milei’s decisive measures to address economic difficulties.
