As global central banks continue to struggle with inflation, interest rate warnings have been issued by the IMF to the European Central Bank and the Bank of England.
The IMF stated that if the two banks stay on the path of further rate hikes, they may face many potential risks, from bond yield divergence to financial stress.
In the report published by the IMF, it was stated that inflationary risks burden monetary policy officials with the task of continuing to tighten, and even in this case, it was stated that officials should be more careful not to reveal developments such as the recent crisis in the banking sector that broke out in the USA and punctuated with the collapse of Credit Suisse.
“While the average capital and liquidity buffers are satisfactory in UK and Eurozone banks, the recent banking crisis has demonstrated how quickly liquidity squeezing and financial stress can surface. Another stress, in particular, is the melting of the buffers of weak-funded banks and the sharp deterioration of credit and broad financial conditions. may lead to shrinkage,” the expressions were used.
“The worst thing to fight inflation is to relax early”
While it was stated in the IMF’s report that due to high and potentially more persistent inflation dynamics, core inflation supports the need for tight monetary policy until central banks reach their targets, another factor pointing to inflation risks is more limited than expected following the successive shocks of economic recession in many European economies. may have been stated.
Speaking to Bloomberg TV, IMF European Unit President Alfred Kammer emphasized the need to continue on the path of monetary policy and said, “The worst thing to do when dealing with inflation is to loosen early or stop tightening early. Because this requires you to take a second step to tightening, and this will reduce inflation. “It makes efforts to reduce it more costly,” he said.