The Importance of Maintaining Monetary Policy and Resisting Early Celebrations Amid High Inflation

High inflation in the post-pandemic world has also hurt economies.

Inflation has recently fallen sharply in the US and some European countries, raising hopes that the UK and other laggards will soon follow suit.

This has raised hopes that the Bank of England and other central banks will soon be able to slow or halt rate hikes.

But Kristalina Georgieva, head of the International Monetary Fund, said there was still a need to keep raising interest rates and resisting tax cuts or increased government spending until price hikes were finally eliminated.

She said: “Policymakers should avoid ‘early celebrations’: lessons from previous inflationary bouts show that easing policy too soon can reverse the progression of inflation.”

“It is important to maintain the stance of monetary policy until inflation is brought down to target on a sustainable basis, while closely monitoring financial sector risks.”

It called on finance ministers to resist the tax cuts until prices are under control.

Ms Georgieva said: “Fiscal policy must also play its part. Tightening fiscal constraints after a period of exceptional pandemic-related support could prop up inflation, rebuild margins and improve debt sustainability, while temporary and targeted measures may be needed to help people.” Outsiders must face the immediate crisis of the cope with living expenses.

Her words echo those of Treasury Secretary Jeremy Hunt, who resisted calls for more spending and lower taxes on the grounds that more borrowing could lead to higher inflation.

On Thursday he said: “The best way to restart growth and ease the pressure on budgets is to bring inflation down as quickly as possible. Our plan will work, but we have to stick to it.”

The group warned that the International Monetary Fund’s paltry growth forecasts may need to be lowered amid a long list of risks that could derail economic activity.

Analysts named the main risks, including a worsening of Russia’s war in Ukraine, tensions in the financial system hurting homes and businesses, and investor panic that would prompt a rapid withdrawal of funds.