IMF urges European central banks to kill inflation ‘beast’ with rate hikes

The International Monetary Fund (IMF) on April 28 urged European central banks to "kill the beast" of inflation by pursuing interest rate hikes.

"You need to go and kill that beast" the IMF's European department director Alfred Kammer told reporters in Stockholm.

He said "history is littered" with examples of policymakers who pause rate hikes only to "need to have a second attempt" at bringing down inflation, inflicting even more pain on the economy.

The European Central Bank along with the other central banks in the region have followed the U.S. Federal Reserve since last year in hiking interest rates sharply to rein in inflation.

But with economic growth and inflation slowing, and several bank failures under the weight of higher interest rates, there has been widespread speculation that central banks may pause their hikes to let the impact of the measures work through the economy.

The IMF believes that central banks should still raise interest rates as it fears that increases in energy prices are feeding through to price increases throughout the economy.

For the ECB, which is meeting next week on interest rates, "that means tightening for longer, and we are estimating until mid-2024 In order to bring inflation down to target sometime in 2025", said Kammer.

The IMF also called on European countries to reduce their budget deficits.

Spending swelled to counter the effect of the pandemic and then to support consumers and industries hit by a jump in energy prices following Russia's invasion of Ukraine.