IMF chief urges caution on rate hikes amid Middle East war oil shock

International Monetary Fund (IMF) Managing Director Kristalina Georgieva on Wednesday warned central banks against moving too quickly to raise interest rates in response to the economic fallout from the war in the Middle East, saying such action could undermine global growth.

Speaking to Bloomberg Television on the sidelines of the IMF and World Bank Spring Meetings in Washington, Georgieva said central banks should remain cautious as long-term inflation expectations remain anchored.

“It is important that the central banks act carefully,” she said, adding that institutions with strong credibility can afford to take a wait-and-see approach while remaining ready to respond if needed.

She warned that policymakers may be too quick to tighten monetary policy because of the inflation shock seen in 2022.

“My worry is that because of 2022, now central banks may say ‘let’s move faster’ and that could be dangerous because it would suffocate growth,” she said.

Her remarks came after the IMF earlier this week lowered its global growth forecast for this year to 3.1%, citing a major oil shock triggered by the Middle East war.

The fund has also indicated that risks are tilting toward a more adverse scenario, under which global growth would slow to 2.5% this year while the average petroleum spot price index would rise to around $100 per barrel.

The conflict has already added to inflation pressures through higher energy costs, raising concerns among policymakers over whether fresh price shocks could force further rate increases.

Still, major central banks have so far largely signaled caution as they assess whether the inflationary impact of the conflict will prove temporary or more persistent.