IMF recommends continuing to raise interest rates despite banking crisis

He International Monetary Fund (IMF) recommended this Tuesday to central banks that they continue raising their interest rates to fight against high inflation, despite the uncertainty in the banking sector caused by the bankruptcy of two entities in the United States last March.

In his report on financial stability, published on the occasion of the agency’s spring meetings with the World Bank, the IMF acknowledged that the banking crisis “complicates the work of central banks” to curb high inflation.

However, the agency expressed its confidence that these institutions have sufficient tools to deal with the vulnerabilities of the sector without having to compromise their fight against rising prices, which is not yielding results as quickly as expected.

“The availability of tools aimed at dealing with risks to financial stability should help central banks to decouple it from monetary policy objectives, allowing them to continue tightening policy to deal with inflationary pressures.”, the report says.

Even so, the Background It acknowledged that there is a risk that uncertainty will intensify, which could force central banks to ease their monetary policy.

In this case, “they should clearly communicate their commitment to bring inflation back to target as quickly as possible once financial stress is reduced”.

The institution said that, despite the measures taken by the US authorities to calm the markets after the bankruptcy of Silicon Valley Bank in February (BLS) and from SignatureBank -which also forced the rescue of the First Republic by the US bank and the sale of the Swiss bank Credit Suisse- it remains to be seen if the panic does not spread to other entities.

In March, the US Federal Reserve (fed) launched a new fund so that banks that need to insure their clients’ deposits have money to do so, and increased the frequency with which it offers foreign exchange operations to ensure there are enough dollars in the financial system.

For him IMFthe difficulties in the banking sector are a reminder of the difficulties that the high rate policy of the central banks to fight against inflation places on the economy.

Even so, the agency considered that the price increase is still “uncomfortably” above the objective of institutions such as the Fed or the European Central Bank.

In the United States, inflation fell four tenths in February and stood at 6%, although in monthly terms consumer prices rose four tenths.

In the euro zone, headline inflation slowed to 8.5% in February, but core inflation rose to 5.6%.

Source: EFE