IMF Chief: Central Banks Face Difficult 'Balancing Act' as Rate Cuts Begin

International Monetary Fund Managing Director Kristalina Georgieva said global central banks face a difficult balancing act as they begin to cut interest rates amid falling inflation.

Georgieva added that while central banks are cutting rates, they must be cautious, ensuring that inflation returns sustainably to target, while avoiding the risk of overly tight policies.

"While clearly weaker than we would have wanted, economic activity has been remarkably resilient," she added. "While inflation is retreating, rates are going down. Recession appears to be unlikely."

On her part, European Central Bank President Christine Lagarde said that the ECB’s decisive policy actions have succeeded in maintaining inflation expectations, adding that inflation remains on track to reach the 2% target by the middle of next year.

The European Central Bank has cut interest rates by a quarter of a percentage point twice already this year, while the Bank of England voted on Thursday to leave rates unchanged after just one cut, as UK inflation remains above target.

"The ECB's firm policy actions have succeeded in maintaining inflation expectations," Lagarde said on Friday, adding that inflation remains on track to reach its 2% target by the middle of next year.

“But has the uncertainty gone away? No, there is still a lot of it,” she said.

The US Federal Reserve recently cut its interest rate for the first time since 2020, by 50 basis points to a range of 4.75 to 5%, and is heading for an additional similar cut by the end of 2024.

The decision was not taken unanimously during this last meeting of the Fed before the US elections on November 5, as Governor Michelle Bowman supported only a quarter-point rate cut.