Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), speaks during a briefing on the Global Policy Agenda at IMF Headquarters during the IMF-World Bank Spring Meetings in Washington, DC on April 18, 2024.
Mandel Ngan | Episode | Getty Images
Kristalina Georgieva, the managing director of the International Monetary Fund, played down the prospect of any negative impact from a difference in monetary policy between Europe and the US, but said problems could be more acute in emerging markets.
Benchmark interest rates in most advanced economies have soared in recent years as central banks sought to curb inflation following the Covid-19 pandemic. These banks are now trying to cut rates again as economies cool, although signals from the US indicate that rate cuts may still be several months away.
An environment of high US interest rates is traditionally bad news for emerging markets because it makes their debt – often priced in US dollars – more expensive. It could also lead to an outflow of capital as investors opt for better returns in the US, and could lead to much tighter financial conditions.
“It is a much more serious problem for countries where the impact of high interest rates in the United States is greater – in many emerging market economies,” Georgieva told DailyExpertNews's Silvia Amaro in Brussels on Monday.
“We are also seeing some of this in Japan, where policymakers' attention should indeed be sharpened to keep a close eye on where volatilities are increasing. This is not the case in Europe.”
In the eurozone, she said that “we are not too concerned about the impact of the exchange rate,” adding that the IMF analysis showed that the 50 basis point difference between the US Federal Reserve rate and that of the European Central Bank is 'too big'. is likely to lead to a minuscule shift in the exchange rate of 0.1 to 0.2%.”
“And that means that here [in Europe] this is not a big problem,” she said.