Raising interest rates to contain inflation fueled by the war in Ukraine could put countries with high debt levels in “difficulty”, the World Bank (WB) warned on Wednesday.
The problem is that because of high interest rates, growth is slowing down a lot and is slowing to levels that are much lower than before the crisis, noted Indermit Gill, the institution’s chief economist, during ‘a press conference.
He referred to the rapid rise in interest rates of the American Federal Reserve (Fed) in the 1970s to draw lessons for the current period.
It took a long time, it didn’t last one or two years. So we should expect this (monetary) tightening cycle to also take a long time, he said.
This left some 24 economies bankrupt. So we can expect countries that have not managed their debt levels well to encounter difficulties. Countries are to be expected to have problems, he predicted.
Rising rates increase borrowing costs and close doors for indebted countries.
The American Central Bank (Fed) may have to raise its rates further, and keep them at a high level for a long time, one of its officials insisted on Wednesday.
The policy rate may need to rise further and remain restrictive for some time, Fed Governor Michelle Bowman said in a speech in Marrakech. Fed rates are currently in the 5.25-5.50% range, the highest since 2001.
The European Central Bank (ECB) recently estimated that the battle to bring inflation back to the 2% target would continue, requiring a restrictive monetary policy to be maintained.
According to forecasts from the International Monetary Fund (IMF), global inflation should still be 5.8% at the end of 2024, and still 3% in advanced economies, before returning close to the 2% target over the course of the year. year 2025.
World Bank President Ajay Banga said Wednesday that the likely continuation of high rates around the world could represent a complicated event for investments as well as for people who for years had become accustomed to an environment of lower rates .
On Tuesday, the Ivorian Minister of the Economy, Adama Coulibaly, president of the G24, bringing together developing countries, called on international financial institutions to cancel the debt of the most vulnerable and poorest countries, mainly held by multilateral development banks and (the) IMF.
This cancellation only concerns the poorest countries, we are not asking that it be canceled for all countries, insisted Mr. Coulibaly.