IMF interest rate warning to European countries
According to the International Monetary Fund (IMF), Europe’s central banks need to be wary of financial stress and various dangers as interest rates continue to rise.
A report released today by the IMF underlined the responsibility of the authorities to continue to tighten due to inflation risks. However, the agency warned countries of the possibility of further tensions, similar to the recent financial turbulence that started in the US and plunged Credit Suisse.
‘FINANCIAL STRESSES MAY ARISE’
The following statements were included in the IMF report:
“While the average capital and liquidity buffers between banks in the euro area and the UK have acted as a hedge, recent problems in the banking sector have shown how liquidity problems and financial stress can arise suddenly.
In another period of stress, reserves can erode, especially among banks with weaker fundamentals. This could drastically tighten financial conditions.”
CALL TO ‘CONTINUE TIGHT MONETARY POLICY’
The IMF also urged the European Central Bank to continue raising interest rates until mid-2024 and EU finance ministers to tighten fiscal policy in a concerted move to curb hyperinflation.
Alfred Kammer, director of the IMF’s Europe Department, told a news conference ahead of the meeting of EU finance ministers and central bank governors that inflation was the main concern.
“Our main policy recommendation is to beat inflation, which means we have to use the monetary policy tool,” Kammer said. “For the ECB, that means more tightening, tightening over a longer period of time.”
‘ATTENTION TO FINANCIAL POLICY’
“Inflation is an additional burden, especially for the poor, and it must be addressed,” Kammer said, adding that EU finance ministers should also support the ECB by reducing tax incentives they maintain during the cost-of-living crisis.
“The central bank alone cannot deal with inflation, fiscal policy is needed to support it,” Kammer said, adding that the expected significant reduction in budget deficits in EU countries did not come about because of the extension of the government packages to support citizens against high energy. prices.