International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks during a briefing on the global policy agenda at IMF headquarters during the IMF and World Bank Spring Meetings in Washington, DC , April 18, 2024.
Mandel Ngan | Afp | Getty Images
Kristalina Georgieva, managing director of the International Monetary Fund, played down the prospect of a negative impact from a monetary policy divergence between Europe and the United States, but said problems could be more acute in emerging markets .
Benchmark rates in most advanced economies have soared in recent years as central banks sought to control inflation following the Covid-19 pandemic. These banks are now looking to lower rates as economies cool, although signals in the United States suggest the cuts could still be months away.
A high US interest rate environment is traditionally bad news for emerging markets, as it makes their debts – often denominated in US dollars – more expensive. It may also trigger capital outflows, with investors opting for better returns in the United States, and lead to a tightening of financial conditions.
“It’s a much bigger problem for countries where the impact of high interest rates in the United States is deeper – in many emerging market economies,” Georgieva told CNBC’s Silvia Amaro in Brussels on Monday .
“We also see some of this in Japan, and there indeed needs to be increased attention from policymakers to carefully monitor where volatilities are becoming greater. In Europe, this is not the case. “
In the eurozone, she said “we’re not too worried about the impact of the exchange rate”, adding that IMF analysis showed that the 50 basis point difference between US Federal Reserve rates and those of the European Central Bank “is this would probably result in a minimal or 0.1-0.2% change in the exchange rate.
“That means here (in Europe) it’s not a big problem,” she said.
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