IMF Top Officer Says Major Central Banks Should Keep Rates High for Longer to Combat Inflation

The International Monetary Fund top officer said on Tuesday that major central banks should keep interest rates high for much longer than some investors expect in order to get inflation down to target.

“We also have to recognize that central banks have done quite a bit … But that said, we do think they should continue tightening and importantly they should stay at a high level for a while,” IMF Deputy Managing Director Gita Gopinath said at the European Central Bank Forum in Sintra, Portugal.

“Now this is unlike, for instance, what several markets expect, which is that things are going to come down very quickly in terms of rates. I think they have to be on hold for much longer,” she added.

As of late May, a survey of the US economists showed that they have deferred their predictions for a Federal Reserve rate drop until the first quarter of 2024.

IMF officials, however, agree that lowering inflation rates must come first.

“It is taking too long for inflation to come back to target that means that central banks will have to remain committed to fighting Inflation even if that means risking weaker growth or much more cooling in the labor market,” Gopinath said.