International Monetary Fund (IMF) Managing Director Kristalina Georgieva has highlighted the “tough balancing act” central banks face as they begin to lower interest rates globally amid easing inflation pressures.
Both the U.S. Federal Reserve and the European Central Bank (ECB) have cut interest rates this year. Last Wednesday, the Federal Reserve lowered its main lending rate by half a percentage point to boost demand, while the ECB had already begun reducing its key rate earlier this year.
However, Georgieva warned that central banks must proceed cautiously. Speaking alongside ECB President Christine Lagarde at an event in Washington, she said, “While central banks are cutting rates, they need to be careful.”
Central Banks’ Critical Mission
Georgieva emphasized the challenge for central banks: “They need to ensure inflation sustainably returns to its target and stays there while avoiding the risk of tightening monetary policies too much.”
She explained that while economic activity has been weaker than desired, it has shown notable resilience. With inflation easing and rates coming down, a recession seems less likely.
Rate Cuts in Europe
The ECB has already cut rates by a quarter of a percentage point twice this year. Meanwhile, the Bank of England voted to keep rates unchanged after one rate cut, as inflation in the UK remains above target.
On Friday, Lagarde noted that the ECB’s decisive actions have helped maintain inflation expectations. She reaffirmed that inflation is still on track to reach the ECB’s 2% target by mid-2025. However, she cautioned, “Is the uncertainty over? No, there’s still plenty of it around us.”
