IMF demands interest rate rises to tame inflation - InterestRate.co.uk
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IMF demands interest rate rises to tame inflation

With soaring inflation affecting economies across the globe, the International Monetary Fund is demanding more aggressive action in relation to interest rate rises. The IMF has appealed for the world’s central banks to hike rates further to tackle inflation as global economies continue to struggle due to the impact of rocketing prices.

The IMF has updated its World Economic Outlook and changed its growth forecasts. It claims that in the world’s three largest economies, China, the United States, and the eurozone, growth was stalling due to inflationary pressures, the impact of the global pandemic, and the Russian war against Ukraine. Moreover, the IMF stated this situation was likely to be more prolonged than predicted in its previous update.

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global economy

Central banks worldwide have been hiking interest rates in recent months in response to inflation levels. In the UK, the base rate has increased from 0.25% in December to 1.25%, following a series of 0.25% increases. Despite this, the IMF wants the banks to take a tougher stance on tightening monetary policy.

The IMF said, “With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers. Tighter monetary policy will inevitably have real economic costs, but the delay will only exacerbate them.”

The worst performance output since 1970

According to the IMF, the global economy faces several serious and plausible risks, including the shutting off of gas supplies to Europe by Russia and lengthy zero-Covid lockdowns in China. It stated that this could lead to the worst output performance since 1970.

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plausible risks

The new forecast from the IMF predicts 2022 global growth at 3.2%, a drop of 0.4% from its last forecast in April. One of the significant factors in this downward revision was a 1.4% downgrade in growth for the world’s largest economy, the United States. According to the IMF, growth in the USA will most likely be just 2.3% due to soaring inflation. It also blamed trade flow issues with China and said growth could stall at just 1% next year.

In China, growth is predicted to be 3.3% this year, a drop of 1.1% compared to the IMF’s previous forecast. This has been attributed to rising inflation and the Covid-19 situation in the country, as this has seriously impacted manufacturing.

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The IMF also predicted that the UK would see growth of 3.2% this year, putting it above many of its main rivals such as France and Germany. However, output in the UK for next year is predicted to drop to just 0.5%, which would make the UK economy the slowest of all G7 nations.