MNI: CBs Can Hold But Hike Fast If Price Expectations Rise-IMF

Central banks can hold interest rates to assess damage from the Iran war but must prepare to "step in firmly with rate hikes" if inflation expectations become unstable, IMF chief Kristalina Georgieva said Thursday. 

"For now, there is value in waiting and watching, with central banks stressing their commitment to price stability but otherwise staying on hold -- with a stronger bias to action if credibility is in question," she said in a curtain raiser speech for next week's meetings in Washington.

"If a severe tightening of financial conditions adds a negative demand shock to the supply shock, then monetary policy returns to a delicate balancing act," Georgieva said.

Fiscal authorities should avoid adding to elevated global debt levels and keep any relief from higher energy prices temporary and focused on the vulnerable, she said. "Adding deficit-financed stimulus to this mix at this moment would increase the burden on monetary policy and amplify such shifts. It would be like driving with one foot on the accelerator and one on the brake."

Next week's revised IMF forecast has shifted from earlier plans to upgrade global growth to a set of scenarios based on the war's outcome, and all of them show weaker growth, she said. The fund's January forecast called for global growth of 3.3% percent for 2026 and 3.2% for 2027. (See: MNI INTERVIEW: Iran Shock Bites Resilient Services Growth-ISM)

"Given the spillovers of the Middle East war, we expect near-term demand for IMF balance-of-payments support to rise to somewhere between $20 billion and $50 billion, with the lower bound prevailing if the ceasefire holds," she said.