IMF cautions central banks against abrupt tightening of monetary policy
For almost two years, Bank of Uganda has administered an accommodative monetary policy direction to support recovery of the economy. PHOTO | FILE
What you need to know:
- In its report, IMF said that whereas a number of economies across the globe still need policy support, the threat of price pressures should be a pointer on which economies should use to act decisively to prevent an unmooring inflation.
The International Monetary Fund (IMF) has said central banks should provide clear guidance on the future policy direction to avoid abrupt tightening of monetary policy.
In its Global Financial Stability report, the IMF said despite improvements since April, financial vulnerabilities continue to be elevated in a number of sectors, masked in part, by massive policy stimulus.
Dr Tobias Adrian, the IMF financial counsellor, said monetary support continues to be essential across the world, which calls for central banks to provide clear guidance on future monetary policies to avoid an unwarranted tightening of financial conditions.
“Monetary authorities should remain vigilant and - if price pressures turn out to be more persistent than anticipated - act swiftly to counter any possible unmooring of inflation expectations,” he said.
For almost two years, Bank of Uganda has administered an accommodative monetary policy direction to support recovery of the economy.
While issuing the Monetary Policy report last week Bank of Uganda Governor Emanuel Tumusiime Mutebile, said the risk of the current elevated inflation in most of the advanced economies could necessitate an early exit from accommodative monetary policies to reduce the risk of capital outflow, which could lead to weakening of the shilling.
In its report, IMF said that whereas a number of economies across the globe still need policy support, the threat of price pressures should be a pointer on which economies should use to act decisively to prevent an unmooring inflation.
However, the IMF noted that there was need to maintain fiscal support to ensure sustainable and inclusive recovery.
“Policymakers should tighten selected macro prudential tools to tackle pockets of elevated vulnerabilities while avoiding a broad tightening of financial conditions. Due to possible lags between the activation and impact of such tools, they should take early action,” the IMF added.
