Gita Gopinath, first deputy managing director of International Monetary Fund (IMF), spoke to Tech Zone Daily at the ECB Forum in Portugal.
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Major central banks will have to keep interest rates high for much longer than some investors expect, Gita Gopinath, first deputy managing director of the International Monetary Fund, told Tech Zone Daily.
“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,” Gopinath told Tech Zone Daily’s Annette Weisbach 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 said.
The ECB began raising rates in July 2022 and has increased its main rate from -0.5% to 3.5% since then. The U.S. Federal Reserve, meanwhile, embarked on a hiking cycle in March 2022 but opted to pause this month, diverging from Europe.
A survey of U.S. economists in late May showed they had pushed back their expectations for the Fed to cut rates from the final quarter of this year to the first quarter of 2024.
However, for the IMF it is clear that reducing inflation needs to be the priority.
“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.
She described the current macroeconomic picture as “very uncertain.”
This is a developing story and will be updated shortly.