Central banks around the world should keep battling inflation by hiking interest rates despite ongoing concerns about financial stability, the head of the International Monetary Fund told AFP on Thursday.
Since last year, central banks have been raising their benchmark lending rates to tackle inflation, which rose to levels not seen for decades in many countries including the United States.
But their fight has been complicated by the recent collapse of Silicon Valley Bank after taking on too much interest-rate risk, setting off a period of turbulence in the banking sector on both sides of the Atlantic.
"We don't envisage, at this point, central banks stepping back from fighting inflation," IMF managing director Kristalina Georgieva said in an interview ahead of the fund's spring meeting next week.
"They have to stay the course in a much more difficult, more complex environment," she said.
The biggest casualty so far has been Swiss banking giant Credit Suisse, which was pushed by regulators to merge with regional rival UBS on concerns about its long-term financial health. But Georgieva said: "Central banks still have to prioritize fighting inflation and then supporting, through different instruments, financial stability."
- US-China tensions weigh on growth -
Georgieva added that US-China trade tensions -- part of a broader realignment of the global economy -- was also having a detrimental impact on world growth.
While there has been a long period in which decisions on production were guided by costs, "this is no more," she said.
"Today, the US, but also other countries, are saying I want to have security of supplies and I want to protect national security," she added.
"The question is how far they should go," she asked, adding that it was possible to guard both aspects "without completely undermining the foundation for growth."
Left unchecked, the long-term cost of trade fragmentation could be as high as seven percent of global economic output, she said in a speech earlier on Thursday to ambassadors and officials in Washington.
- 'Elusive' recovery -
In the same speech, she warned that a continued slowdown in almost all the world's advanced economies is expected to drag global growth below three percent this year.
