(AGENPARL) – ven 21 aprile 2023 [Hero weekend read]
Dear Colleague,
In today’s edition, we highlight:
– Defeating inflation
– Economic uncertainty
– Digital infrastructure
– Partnerships between economists and humanitarians
GLOBAL INFLATION
(Credit: IMF Photo)
Many countries have responded by raising interest rates, but some reacted late, panelists said. If the United States had started earlier, “we would not be in the midst of this trilemma of trying to simultaneously lower inflation, minimize damage to growth, and maintain financial stability,” Cambridge University’s Mohamed El-Erian said. Policymakers must now contend with a financial system conditioned to “low for long” rates adjusting to a world of “higher for longer.”
Should central banks aim for inflation higher than 2 percent, the target of many central banks? Olivier Blanchard, of the Peterson Institute for International Economics, said he has long favored a higher target, which would give monetary policy more scope to adjust.
Similarly, forward guidance—when central banks announce policy action in advance—provides certainty about monetary policy direction, but it can tie policymakers’ hands. “We need escape clauses for when things change” and a different course of action becomes necessary, Gopinath said.
Moderator Tom Keene wondered whether a general policy on battling inflation was even possible, given the range of inflation narratives: “Is it every central bank for itself?”
Supply shocks aren’t going away in a hurry, panelists said, which means monetary policy will face more serious tradeoffs than before.
But the lesson is to let these shocks happen and not fight them too hard, Blanchard said. “If the central banks have built credibility, they won’t suffer second round effects.”
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[cotw]
Our latest World Economic Outlook forecasts that growth will slow from 3.4 percent last year to 2.8 percent this year. Growth is then expected to accelerate to 3 percent next year. Risks to the outlook are heavily skewed to the downside, with heightened chances of a hard landing. The Chart of the Week brings together all gross domestic product forecasts in our latest assessment. Add any economy or grouping from the dataset to the chart. Move the slider for historical data or future estimates.
DIGITAL INFRASTRUCTURE
(Credit: IMF Photo)
“Digital public infrastructure does not require deep pockets, it requires deep conviction,” he said.
In India, digital identity has enabled 80 million verifications a day and 8.7 billion transactions a month through instant digital payments. There are nearly 300 million users, of whom 50 million are small businesses such as fruit and vegetable vendors.
Verification through digital identity has saved at least $27 billion in government welfare schemes and brought down customer acquisition costs to four cents from $6-9 previously, according to Nirmala Sitharaman, India’s finance minister.
Digital tools, layered on top of public-funded infrastructure, as in the case of India, has fast paced financial inclusion. “It brings in so many people who are on the margins of society to now participate in economic opportunity,” said Melinda French Gates, the co-chair of the Bill and Melinda Gates Foundation.
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Financial stability is not only about managing inflation, employment rates and spending, it’s about understanding how those factors affect people in different places and in all kinds of circumstances. In this podcast, Filippo Grandi, the United Nations High Commissioner for Refugees, discusses how strategic partnerships between humanitarians and economists will help support the millions of forcefully displaced people in the world and provide a firmer footing for an economic recovery.
FINANCE & DEVELOPMENT
(Credit: IMF/Adobe Stock/ECB)
The ECB is on the front line of the fight against inflation. Policymakers have raised interest rates to 15-year highs to bring euro area inflation, which peaked at more than 10 percent in October, back to the 2 percent target.
Inflation is expected to slow this year, but monetary policy will continue to attract scrutiny as the continent’s economic growth slows, consumers continue to struggle with the cost-of-living crisis, and governments seek to finance large debts in a new era of higher interest rates.
Lane calls on governments to start rolling back fiscal support to consumers as the energy crisis trigged by Russia’s invasion of Ukraine becomes less acute. He discusses the importance of steering inflation expectations back to target, the challenges involved in shrinking the central bank’s balance sheet, and the lessons that can be learned from the monetary moves of the past year.
(Credit: IMF/Pete Reynolds)
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Weekly Roundup
ANNUAL MEETINGS
The Annual Meetings of the International Monetary Fund and the World Bank Group in October 2026 will take place in Bangkok, Thailand, as decided in a vote by the Boards of Governors of the two institutions. The meetings are usually held for two consecutive years at the IMF and World Bank headquarters in Washington and every third year in one of the institutions’ member countries. The 2023 Annual Meetings will take place in Morocco.
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[Mark your calendar]
MARK YOUR CALENDAR
APRIL 25, 11:30 AM ET
This event, organized by the Wilson Center’s South Asia Institute in partnership with the IMF, will focus on a new study by Fund staff on India’s financial sector and how it can be used to support growth and reduce vulnerabilities.
Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.
[nick]
Nick Owen
Editor
IMF Weekend Read