With this, he added, “the need for central banks to raise interest rates so much is reduced.” “Of course, central banks will probably still have to raise interest rates a bit, but not as much as in the absence of fiscal restraint,” he added.
The IMF advanced this Monday a chapter of its Fiscal Monitor, which it will publish in its entirety next week, within the framework of the spring meetings held in Washington by the IMF and the World Bank.
With the title “Inflation and disinflation: What role does fiscal policy have?”, a team of IMF analysts, led by Marcos Poplawski and Carlos Gonçalves, analyze the impact of inflation on public finances and offer a series of recommendations for cut prices.
The main advice, the aforementioned fiscal tightening, although accompanied by “specific cash transfers to the most vulnerable groups of the population,” Mauro said.
“If you provide that specific support, you not only dampen the consumption effects of the poor, but you also dampen the consumption effects of the overall economy, so it’s a good decision to combine fiscal policy and monetary policy.” he added.
When central banks act alone, without the support of fiscal policy, they need to raise interest rates substantially to combat inflation, the report says.
In the context of the “sharpest rise in inflation in three decades,” the report looks at how inflation affects various segments of society in different places.
