Central banks navigate "difficult balancing act" as rates fall, says IMF chief

Shafaq News/ The Director of the International Monetary Fund (IMF), Kristalina Georgieva, stated on Friday that central banks worldwide are navigating a "difficult balancing act" as they begin lowering interest rates in response to decreasing inflation.

Speaking alongside European Central Bank (ECB) President Christine Lagarde in Washington, Georgieva emphasized the challenges that central banks face in maintaining economic stability while adjusting rates.

In 2024, several central banks, including the US Federal Reserve and the ECB, have started cutting rates. The US Federal Reserve lowered its benchmark lending rate by half a percentage point on Wednesday to stimulate demand, following similar actions by the ECB, which had already initiated rate reductions earlier in the year.

"Central banks face a difficult balancing act," Georgieva said. "They must ensure that inflation sustainably returns to target and remains there, while avoiding the risk of excessively tight policies." She further commented on the global economic situation, noting, "While clearly weaker than we would have wanted, economic activity has been remarkably resilient. While inflation is retreating, rates are going down. Recession appears to be unlikely."

The ECB, in particular, has cut its rates by a quarter percentage point twice in 2024. Meanwhile, the Bank of England decided on Thursday to keep its rates unchanged after making just one cut, as inflation in the UK remained higher than expected.

ECB President Christine Lagarde affirmed the impact of the bank’s policies, saying, "determined policy actions have successfully kept inflation expectations anchored." She expressed optimism that inflation is still projected to reach the bank's target of two percent by mid-2025. However, she cautioned that uncertainties remain, adding, "But is the uncertainty gone? No, there is still plenty of that around."