Speaking to Reuters in Berlin a day before the European Central Bank is widely expected to raise rates by 75 basis points, the fund’s managing director said it would take until 2024 for the positive effect of central banks raising rates globally to be felt.
The ECB had for months said that its first step will be to raise rates to a neutral setting, where it was neither driving nor restricting growth, but some policymakers are now advocating more aggressive action, saying the ECB should go further to tame inflationary pressures.
“At this point we look for getting to a neutral mode, and in most places we are not quite yet there,” Georgieva said in an interview.
Central banks have to bring rates up because “when inflation runs high, that undermines growth, it hits the poorest parts of the population the hardest.”
Recent rate hikes by the ECB have come against the backdrop of a deteriorating economic outlook and inflation that hit 9.9% in the euro zone in September, driven by soaring food and energy prices after Russia’s invasion of Ukraine.
Asked how long she expected central banks to keep raising rates, Georgieva said the IMF projected that “by 2024 to get to a point when central banks are seeing the impact of their actions”.
“The benefits would come but they are not instantaneous, this requires some patience in society,” she added.
IMF chief Kristalina Georgieva said on Wednesday she expects new Prime Minister Rishi Sunak to steer Britain towards fiscal sustainability and said he was right to warn the public of difficult decisions ahead.
Speaking to Reuters in Berlin, Georgieva welcomed what she said was Sunak’s clarity and constructive attitude that she knew from his time as finance minister.
She expects to speak to the recently appointed finance minister Jeremy Hunt in coming days. “The new prime minister comes with a platform that he has shaped during his days as a chancellor, and it is one of being very prudent in bringing fiscal discipline in the UK,” she said.
“I listened carefully to him talking to the British people, and this is a message that should resonate across the world. These are tough times, and tough times require tough decisions.”
Sunak became Britain’s third prime minister in two months on Tuesday and pledged to lead the country out of a profound economic crisis and rebuild trust in politics.
The Times newspaper has reported that Sunak might delay a planned fiscal statement next week in order to fill a hole of 40 billion pounds ($46 billion) in the UK’s finances.
Foreign minister James Cleverly said on Wednesday a short delay would be no bad thing to make sure the government gets the fiscal statement right.
Asked about the issue, Georgieva said she did not expect any change in plans to publishing the statement.Russia’s latest strikes on civilian infrastructure have raised the cost of Ukraine’s recovery and could see it needing close to $4 billion a month just to keep power and water supplies going, the head of the International Monetary Fund said on Wednesday.
The IMF had envisaged Ukraine’s external financing needs at around $3-4 billion a month next year but sees that rising to $5 billion in a worst case scenario after Russian forces rained missiles and drone attacks on Ukraine’s energy infrastructure.
Speaking to Reuters in Berlin, IMF managing director Kristalina Georgieva said the institution was focused on helping Ukraine keep afloat now while working on a longer-term programme whose size and duration were yet to be worked out.
She also signalled that China should be allowed to participate in an international platform that the European Commission wants to set up this year for Ukraine.
“We still hope that we can stay within these parameters of 3-4 billion, but what changed since we had this discussion is Russia’s terrible bombing of civilian infrastructure,” she said.
“Just to get electricity back and water supply back we are moving towards the upper range of 4 billion … Just imagine a worst case scenario.”
Russia stepped up attacks on infrastructure this month at the same time as its forces were being pushed back by advancing Ukrainian troops. The attacks caused nationwide blackouts and forced Ukraine to ration energy use. Moscow has acknowledged targeting energy infrastructure but denies targeting civilians.
Ukrainian President Volodymyr Zelenskiy said this week that Russian attacks had destroyed more than a third of the country’s energy infrastructure.