The International Monetary Fund (IMF), has called on Central banks across the globe to raise interest rates, in order to halt the escalating inflationary trends.
IMF Director of Monetary and Capital Markets, Tobias Adrian, made this call at a press briefing on the latest Global Financial Stability Report, in Washington DC, United states of America, on Tuesday,
Describing inflation as the most important challenge, Adrian suggested that actions were needed to aggressively bring inflation down back to target.
According to him, "Consumers expect prices to continue to rise rapidly in the short term before inflationary pressures start to recede over the medium term. But this could change.
"There's a risk that eventually inflation expectations could de-anchor and there could be more of an expectation of inflation even in the medium term. Central banks have to counteract that by tightening monetary policy, slowing economic activity, to bring inflation down."
In a blog on the same day, Adrian said the resilience of financial markets would be tested by the war in Ukraine, which is unfolding amid an already slowing recovery from the pandemic.
"Europe bears a higher risk than other regions due to its geographic proximity to the war, reliance on Russian energy, and the non-negligible exposure of some banks and other financial institutions to Russian financial assets and markets."
"Emerging and frontier markets now face higher risks of capital outflows, with differentiation across countries between commodities importers and exporters, even as the US central bank raises interest rates and unwinds its balance sheet.
"Amid geopolitical uncertainty, the interplay of tighter external financial conditions and the US Federal Reserve normalisation is likely to increase the risk of capital flight," Adrian added