Policymakers must prioritize taming inflation: IMF

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Interest rates are already being raised worldwide. Getty Images.

International Financial Institution, the International Monetary Fund (IMF) has emphasized on the need for policymakers to prioritize curbing inflation by looking at their monetary policies and limiting government spending.

In its World Economic Outlook for July 2022, IMF brought out how taming inflation must be looked at first, especially with the rate prices are increasing continuing to squeeze living standards.

“With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers,” read the outlook.

Global inflation has lately been on the rise as a result of the Ukraine war, among other domestic issues thus, countries like Zimbabwe have recorded a yearly inflation rate of 257% in July.

Since the beginning of 2022, Zimbabwe’s apex bank has been following a tight monetary policy which is the monetary policy committee believes to be deflationary in nature.

However, according to IMF, pursuing tighter monetary policies will inevitably have real economic costs, but delay will only exacerbate them.

“Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary. Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices,” reads the outlook.

The IMF believes that tighter monetary policies need to be offset by increased rates and limited government spending.

“Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending,” IMF said.