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IMF steering committee calls for inflation vigilance, draft statement shows

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WASHINGTON/BRUSSELS, Oct 14 (Reuters) – The International Monetary Fund’s steering committee is urging international policymakers to extend their monitoring of inflation dynamics and be able to take “decisive actions to maintain price stability,” a draft communique seen by Reuters confirmed.

The statement, to be issued by the Fund’s International Monetary and Financial Committee (IMFC) on Thursday, highlights considerably elevated considerations at this week’s IMF and World Bank fall conferences that inflation spikes might show extra sturdy.

The 24-member IMFC mentioned inflation was being aggravated by pent-up shopper demand, pandemic-induced provide chain disruptions and a pointy rise in vitality and commodity costs.

“The current surge in inflation is still assessed to be mainly driven by those temporary factors but now appears less transitory than previously expected, and upside risks to the inflation outlook in the near term are increasing in a wide range of countries,” the committee mentioned.

It added that some central banks have taken proactive measures to start withdrawing financial stimulus to keep away from a possible de-anchoring of inflation expectations.

The IMFC known as for central banks to stay vigilant for second-round results of inflationary forces and to offer clear communications on shaping expectations.

“Special attention should also be given to the build-up of financial vulnerabilities stemming from house price increases, historically high asset prices, increased crypto asset-related activities, and the withdrawal of support measures,” the panel mentioned, including that macroprudential and regulatory instruments ought to be used to mitigate dangers going ahead.

With many low-income IMF member nations dealing with fragile recoveries, the IMFC additionally mentioned it helps stronger Fund engagement with these nations, with an emphasis on extra conventional financing preparations requiring structural reforms than on emergency financing.

But because the IMF develops a brand new Resilience and Sustainability Trust to assist channel a $650 billion allocation of reserve belongings to a broader vary of weak middle-income nations, the IMFC cautioned that the brand new car wanted to be consistent with the IMF’s mandate because the world’s disaster lender.

G20 finance leaders on Wednesday mentioned they have been open to exploring choices to channel some SDR reserves to poorer nations by multilateral growth banks, however the IMFC cautioned in opposition to this.

“In general, we also deem it important that the IMF closely cooperates with multilateral development banks; however, we see less scope for channeling SDRs through these institutions, given that a shift towards development financing would constitute a departure from the IMF’s existing model,” the draft statement mentioned.

Reporting by David Lawder and Jan Strupczewski, Editing by Franklin Paul and Paul Simao

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