Davos: The IMF tries to temper rate-cut expectations
Given how excitable financial markets can get at any hint of a policy rate cut, it may seem cheaper credit is all there is to material progress. Monetary policy is a lot more complex than that, though, which is why economists constantly need to explain why over-cheap, free or negatively priced loans are not sustainable, even if they’re extended in crisis times.
Gita Gopinath spoke in similar spirit at the World Economic Forum in Davos. “Markets are expecting central banks to cut rates pretty aggressively...
I think it’s a bit premature to make that conclusion," said the International Monetary Fund’s first deputy managing director. “We should expect rates to come down some time this year, but based on the data we see right now, we expect this to be more likely in the second half." The data restraining what Western and other markets are looking for relates to realities like inflation, which is yet to be quelled, and labour markets that remain tight and could cause upward wage-cost pressure.
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