The IMF recommends that Europe keep interest rates at current levels, postponing cuts, to definitively tame inflation since in general, in the fight against price growth "it is better to make a mistake in doing a little more than doing less".
Alfred Kammer, director of the Europe department of the International Monetary Fund, writes, that "the time for rate cuts will eventually come. In that case it is better that these cuts do not lead to backward marches. That moment is not now. Urgency also requires patience."
"The effects of monetary tightening are starting to be felt in Europe and criticism inevitably rises" but "central banks must not blink" to avoid ending the fight against inflation too soon. IMF Director for Europe, Alfed Kmmer, said: "This would be a costly mistake that Europe can and must avoid."
Europe's governments and policymakers "can and should help" central banks in fighting inflation by "reducing the still high deficits to rebuild or preserve resource buffers" in public budgets "so as to help bring inflation down faster." The IMF writes.
IMF, inflation at 2% in Europe in 2025
The IMF sees Europe's inflation returning to the 2% target "at some point in 2025." Alfred Kammer, director of the IMF's Europe department, writes, that "before then, nominal wage growth will rise, recovering some of the lost labour income." Moreover, as "tightening policies will decrease domestic demand, corporate earnings should squeeze and help mitigate the impact of faster wage growth on inflation."
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