Higher inflation could require more monetary policy tightening: IMF chief

Gandhinagar: With economic activity slowing, especially in the manufacturing sector, medium-term growth prospects globally could remain weak, and higher inflation could require more monetary policy tightening, IMF managing director Kristalina Georgieva said at the G20 summit on Tuesday.

"The global economy has shown some resilience. Despite successive shocks in recent years and the rapid rise in interest rates, global growth—although anemic by historical standards—remains firmly in positive territory, supported by strong labor markets and robust demand for services," Georgieva said at the third meeting of the G20 Finance Ministers and Central Bank Governors (FMCBG).

"That said, activity is slowing, especially in the manufacturing sector. Looking further ahead, medium-term growth prospects remain weak," she added in a statement.

In its latest World Economic Outlook report, released in April, IMF had projected the Indian economy to grow by 5.9% for calendar year (CY) 2023, and 6.3% during CY 2024, making it the fastest-growing economy in the world.

According to the IMF, the baseline global forecast is for growth to fall from 3.4% in 2022 to 2.8% in CY 2023, before settling at 3% in CY 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in CY 2022 to 1.3% in CY 2023.

"Inflation could remain higher for longer, requiring even more monetary policy tightening, and fragmentation could weigh even more on growth," Georgieva said

"But headline inflation is still too high and core inflation remains sticky despite the significant monetary policy tightening," Georgieva said in the statement.

"Elevated food and fertilizer prices are particularly worrying, especially for low-income households for which food insecurity and malnutrition are now much more persistent," she added.

India's retail inflation, which cooled steadily for four months, leapt to a higher-than-expected 4.81% in June, driven by rising food and vegetable prices.

The Reserve Bank of India (RBI) had left the repo rate unchanged at 6.50%.

Georgieva said that G20 leaders should seize the opportunity to move the global economy onto a more vibrant medium-term path to mitigate the risks, which would require both domestic and international policy action.

She emphasized that events like climate change, pandemics, and Russia’s invasion of Ukraine are causing widespread turmoil.

"To protect the most vulnerable countries and their people, we need to strengthen the global financial safety net," she said.

"While advanced and strong emerging market economies have a cushion of more than $10 trillion in international reserves, the rest of the world relies on pooled resources of international institutions such as the IMF," she added.