International Monetary Fund (IMF) first deputy managing director Gita Gopinath said interest rates should come down this year, but more in the second half.
It is a bit premature for markets to expect rapid interest rate cuts because the battle against inflation is not over yet, said Gopinath at the World Economic Forum (WEF) in Davos on Tuesday.
“The markets are expecting central banks to cut rates pretty aggressively — I think that’s a bit premature to make that conclusion,” she noted.
“We should expect rates to come down sometime this year, but based on the data we see right now, we expect this to be more likely in the second half of this year,” she added.
Further, she said that in the longer term key rates will be on average higher than in the period after the global financial crisis, when the central banks were trying to boost inflation.
Francois Villeroy de Galhau, European Central Bank (ECB) governing council member said that economic transformations including the fight against climate change will mean higher interest rates in the longer term.
The ECB’s interest rates could be at a “new normal” of around 2 per cent on average through the cycle, he added.
“It’s too early to declare victory, I completely agree with Gita that the job is not yet done,” Villeroy also said.
Interest rates “shouldn’t be higher than today and barring major surprises — we look at the Middle East — our next move will be a cut probably this year.”
The main business of the World Economic Forum started on Tuesday, with a speech by Chinese Premier Li Qiang at the top of the agenda.
Li's address to global business leaders and investors comes as China grapples with a sluggish post-pandemic economic recovery and a real estate crisis.
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