Upside risks for inflation sizable, central banks must stay resolute: IMF’s Gita Gopinath

Price pressures seem entrenched in many economies, including emerging markets, and upside inflation risks are sizeable, says IMF's Gita Gopinath

Price pressures seem entrenched in many economies, including emerging markets, and upside inflation risks are sizeable, said Gita Gopinath, First Deputy Managing Director at International Monetary Fund (IMF), adding that central banks must keep their monetary policies tight.

Ms. Gopinath was addressing the Annual Conference of the Central Bank of Brazil in Brasilia on May 17.

Also read: FM Nirmala Sitharaman, IMF’s Gita Gopinath meet in U.S., discuss debt vulnerabilities

"Markets are probably too optimistic about what it will take to bring down inflation in EMs. Despite encouraging signs, I am worried that price pressures seem entrenched in many economies and that upside inflation risks are sizeable," she said at the conference.

Hence, Ms. Gopinath said central banks must remain resolute in keeping policies tight and recognise that insufficient monetary tightening now may necessitate even more painful actions down the road — a lesson from the high inflation period of the 1970s that very much applies today.

"Fiscal restraint can help support the fight against inflation by central banks. And financial tools — judiciously used — can improve trade-offs in the event of pronounced financial stress."

Ms. Gopinath stressed on the fact that challenges are global, but are more heightened for emerging markets. Hence, it is critical for emerging market authorities to refine and strengthen their monetary, fiscal, and financial policy frameworks.