While macroeconomist Edin Mujagic generally agrees with the IMF and Global Economic Outlook estimates, he cautions against some steps. ‘I really thought: what am I reading?’
Among other things, Mujagic is concerned about the future prospects outlined by the International Monetary Fund (IMF) once inflation is under control. “We’ve all come to the conclusion recently that we never want to go back to a period of 0% or negative interest rates,” he says. “But the IMF says that if inflation drops to the much-desired 2%, central banks around the world should be expected to come full circle.”
It refers to the return to 0% interest and the large-scale purchase of government bonds by central banks. This doesn’t make him happy at all. Precisely because, according to Mujagic, in recent years it has become clear that if such an economic policy is pursued for too long, it will lead to problems.
The reason central banks revert to low interest rates when inflation is low, according to Mujagic, is that there is little room to stimulate the economy in other ways. “This would only be possible by introducing exceptional measures, such as 0 percent interest.”
Policy coordination
The IMF also asks in the report that governments and central banks may need to coordinate their policies in the future. “And that makes every economist’s hair stand on end,” Mujagic says. ‘Because we’ve had coordination between fiscal policy and monetary policy a few times in the past, and that basically means that the central bank has to listen to what the government wants. That almost always means higher inflation in the future, and you should never want that.’
“You should never wish for higher inflation in the future”
Furthermore, Mujagic notes that the IMF suggests that even the 2% standard for inflation is likely to be challenged in the future. “The IMF believes that the standard may be too harsh and that the target should be maybe 4 or 5 percent,” he concludes. “It’s terrifying. Especially if you combine it with that possible coordination. This is the last thing an economy needs, let alone a society.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
