IMF expects rate cut

In its latest World Economic Outlook Report, the International Monetary Fund (IMF) noted that monetary policy tightening in response to high inflation is likely to ease and interest rates to return to pre-pandemic levels.

How close interest rates will get to these levels, it was said, depends on whether alternative scenarios involving a steady increase in budget deficits and debts or financial fragmentation will occur.

The report said that the ratio of public debt to gross domestic product worldwide increased during the Covid 19 pandemic and will remain high. In the third part of the report, it was stated that low interest rates will facilitate the fight against public debt.

HOW TO COMBAT THE GROWING PUBLIC DEBT?

In the report published by the IMF, “How to combat the growing public debt?” In the section titled, three main conclusions are reached from the review of historical experiences based on the econometric analysis.

These results are listed below:

Timely and properly designed fiscal adjustments are likely to permanently lower debt ratios.

– When a country is burdened with debt, renegotiation of existing payment terms, policies to support fiscal consolidation and economic growth can have a significant and lasting effect in reducing debt ratios. Coordination between creditors is essential.

Finally, economic growth and inflation have historically contributed to reducing debt ratios.

Persistent inflationary pressures pose the risk of a “prolonged high” interest rate environment, the IMF said in the report. However, over a longer period of time and after inflationary pressures have subsided, equilibrium real interest rates are expected to remain low due to structural forces that should help keep real service costs in check. Debt.