World economy recovers from pandemic, but rate hike will complicate: IMF committee

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By David Lawder and Andrea Shalal

WASHINGTON, Apr 8 (Reuters) – The International Monetary Fund’s steering committee said the world economy is recovering faster than expected from the COVID-19 crisis, but warned that an interest rate hike may be especially painful for emerging economies.

In its statement, the committee underscored the importance of accelerating the distribution of COVID-19 vaccines worldwide, and pledged to strengthen international cooperation.

“Great financial fragility could pose risks, should global financial conditions tighten quickly,” the 24-member committee said.

“The crisis can have long-lasting consequences and exacerbate poverty and inequalities, as climate change and other shared challenges are increasingly pressing,” he added.

IMF Managing Director Kristalina Georgieva said a stronger growth outlook for the United States has positive effects for the world, but some countries struggling to reopen their economies could suffer if expansion leads to rapid growth rates. interest.

In a forum during the Spring Meetings of the IMF and the World Bank, he warned Federal Reserve Chairman Jerome Powell to clearly communicate the Fed’s view that inflation remains under control, and said markets have adopted a more “exuberant” view of inflation expectations, which has driven up bond yields.

The IMF expects inflation in the United States to be 2.25% in 2022, only slightly above the Fed’s 2% target.

“That is why the careful approach that President Powell is taking to communicate clearly is very helpful. Both to avoid raising these expectations in the United States and to give the rest of the world clarity about US monetary policy. “.

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Georgieva said she was concerned about the effect of inflation on emerging markets, which might be more inclined to respond through monetary financing, or the “printing” of more money to directly support public spending.

IMF RESERVES AND QUOTAS

During a press conference, Georgieva said that all IMFC members had strongly supported an expansion of $ 650 billion in the monetary reserves of the Fund’s Special Drawing Rights, especially representatives from middle-income countries.

The distribution of reserves would especially help these countries to reinforce the financial resources that are still affected by the pandemic, he said.

Georgieva also said negotiating a new agreement on IMF permanent quota resources will be difficult, but member countries are showing great commitment to the process, including the United States.

“What I took away from the meeting are two messages. One, the strong support for the IMF as the center of the global financial safety net and the clear willingness of all members to be endowed with adequate resources to do our work,” he said Georgieva at a press conference.

The United States, which has a majority stake in the IMF, had opposed any share change during the Donald Trump administration.

The last quota increase, which increased the share of the vote of China, Brazil and other emerging markets, was agreed in 2010 and applied in 2016, during the Barack Obama administration.

(Reporting by Andrea Shalal and David Lawder; Edited in Spanish by Javier López de Lérida)

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