Central banks should "act resolutely to bring inflation back to target" after figures hit multi-decade highs, the IMF said Tuesday (Oct 11), pointing to an unusually challenging financial stability environment.
The comments by the Washington-based crisis lender in its latest Global Financial Stability Report come as its annual meetings start this week, fully in-person for the first time since 2019.
The meetings open in a challenging period for the global economy, as surging prices and rising interest rates threaten to reverberate around the globe while countries emerge from the coronavirus pandemic.
But to keep inflation pressures from becoming "entrenched," central banks should act firmly to bring down the figures, the IMF's report said on Tuesday.
This echoes earlier comments from the fund's chief Kristalina Georgieva, who said last week that it is too soon to pull back as the risk of not doing enough is bigger than that of doing too much.
Supply chain problems were already prevalent as demand surged after the pandemic slowdown, fueling inflation worldwide, and the strains worsened after Russia's invasion of Ukraine which sent food and energy prices surging.
Clear communication about policymakers' commitments will be crucial to "preserve credibility and avoid unwarranted market volatility," the International Monetary Fund said on Tuesday.
But it acknowledged that both advanced and emerging economies are facing heightened problems.
Global markets are showing strains as investors become more risk-averse during heightened economic and policy uncertainty, said IMF financial counsellor Tobias Adrian in a blog post.
He added that financial asset prices have fallen with tightening monetary policy, while the economic outlook has worsened and recession fears have risen.
In particular, the "faltering property sector in many countries raises concerns about risks that could broaden and spill over into banks and the macroeconomy," he cautioned.
China, for example, saw its property sector downturn deepen as home sales slumped during the Covid-19 outbreak and worsened developers' liquidity woes.
And real estate developer failures could in turn hit the banking sector, including some small banks, the IMF report noted.
Meanwhile, emerging markets face risks ranging from high borrowing costs and inflation, along with volatile commodity markets, the fund said. AFP