Kamal Ghorui
IMF chief Kristalina Georgieva on Thursday urged central banks to prioritise tackling inflation even at the cost of growth, warning that the global fallout of the US-Israel war on Iran will inevitably bring economic “pain”, PTI reported.“A word of caution upfront: this being a classic negative supply shock, demand adjustment is unavoidable. We cannot go through it without some pain,” she said at the IMF headquarters ahead of the Spring Meetings next week.Georgieva cautioned policymakers against unilateral measures such as export controls and price caps, saying these could worsen global conditions. “Please do not make matters worse… don’t pour gasoline on the fire,” she said.She stressed that if inflation expectations begin to unanchor, central banks must act decisively. “Rate hikes, of course, would further dampen growth – that’s how they work,” she said, adding they are the “right price to pay for price stability”.The IMF chief also said fiscal support should remain targeted and temporary, and only be used where there is sufficient fiscal space.“Finally, if a severe tightening of financial conditions adds a negative demand shock to the supply shock, then monetary policy returns to a delicate balancing act while fiscal policy – if and only if there is fiscal space – switches to well-calibrated demand support,” she said.Georgieva said the IMF remains committed to supporting countries during crises. “And, as the firefighter, we are here for you when crisis hits,” she said.She added that demand for IMF balance-of-payments support could rise to between $20 billion and $50 billion depending on how the situation evolves, with the lower end likely if the ceasefire holds.The IMF chief warned that supply disruptions and transport bottlenecks could push at least 45 million people into food insecurity.“Even in the best case, there will be no neat and clean return to the status quo ante,” she said, noting that infrastructure damage, supply chain disruptions and loss of market confidence would continue to weigh on growth.Highlighting the uneven impact of the crisis, Georgieva said low-income, energy-importing countries with limited fiscal space would be hit the hardest.“Spare a thought for the Pacific Island nations at the end of a long supply chain, wondering if fuel will still reach them in the wake of such a severe disruption,” she said.
