IMF chief sees increased risks to financial stability due to rate hikes

An increase in interest rates by central banks to fight inflation leads to increased risks to financial stability, said Kristalina Georgieva, head of the International Monetary Fund (IMF). In addition, in her opinion, the uncertainty in the global economy “is exceptionally high, including because of the risk of geo-economic fragmentation, which could lead to a split of the world into competing economic blocs.” This “dangerous division” will make everyone poorer and less secure.

“Obviously, the risks to financial stability have increased. In a period of rising debt levels, a rapid transition from a prolonged period of low interest rates to much higher rates needed to fight inflation inevitably generates shocks and vulnerabilities, as evidenced by recent developments in the banking sector of some advanced economies,” said Ms. Georgiev at the China Development Forum in Beijing. Her words are on site IMF.

According to the head of the fund, the measures taken against the backdrop of recent developments in the banking sector “have eased tensions to some extent,” but uncertainty remains high, which “underlines the need to be vigilant.”

The IMF expects that China will account for about a third of global growth, which will ensure the recovery of the global economy. Ms. Georgieva recommended that the PRC increase productivity and rebalance the economy “toward less investment and a shift towards more consumption-driven growth that is longer-lasting, less debt-driven, and helps address climate issues.” The IMF estimates that productivity-enhancing measures could increase real GDP by 2.5% by 2027 and by about 18% by 2037. Global warming could lead to a decline in China’s GDP by 0.5-2.3% in 2030.

Higher rates could become the “new normal” after a decade of relatively cheap money, warned attendees at a financial sector conference in Riyadh. Economists expect the countries of the Persian Gulf to maintain high growth rates, while for other states, the appreciation of capital will be more noticeable.

More details – in the material “Kommersant” “Adapting to High Stakes”.

Leonid Uvarchev