The world of finance should be prepared for ‘higher-for-longer’ interest rates as the battle against inflation has not been won, IMF First Deputy Managing Director Gita Gopinath said Friday (Oct. 13) in Marrakech, Morocco. Thousands of journalists, policymakers, bankers and civil society organizations are gathered there for the Annual Meetings of the IMF and World Bank.
“Inflation has come down, but the job is not done yet. You still have sticky services, inflation, core inflation. It is going to be a bumpy road and that's going to be a challenge for policymakers,” Gopinath told a full crowd gathered to hear the Global Debate on the World Economy at the Annual Meetings.
Central Banks like the ECB are going to be under pressure to keep rates tight said Christine Lagarde.
“You know, we did 450 basis points hike in 15 months, which is a huge, unprecedented increase. And this is what I call the strong but lagged policies. We haven't seen the end of it yet. We are seeing tightening of financing conditions like it has never happened before. We know that there is some more in the pipeline and how it is going to impact our economies. What how it will have deflationary impact, disinflationary impact in our region is also to be seen,” said Lagarde.
Markets are only coming to terms now with the fact that the era of ‘easy money’ and loose financing is over, and a renewed focus on capping the growth of debt is emerging said Joyce Chang, Head of Research at investment bank JPMorgan.
“You know, the bond vigilantes are back. The great Moderation is over, and the focus has come back to the fiscal and debt sustainability. And there's actually more talk about that at some of the market meetings than even about the soft landing and no recession scenario,” said Chang.
There is also a rise in trade protectionism underway, with governments looking to break in to trading blocs warned Ngozi Okonjo-Iweala of the World Trade Organization warned.
“If we have trade fragmented and people just trading with each other in blocks of people similar to themselves. This fragmentation we've done some work, Gita and the IMF has done some work that shows that the the real losses to real GDP, global GDP in the long term are substantial. 5% in our case they had 7%. And for emerging markets on developing countries, it would be in double digits,” said the Secretary-General.
A copy of the full transcript is available at IMF.org