The managing director of the International Monetary Fund has said Federal Reserve’s interest rates hikes could “throw cold water” on already weak economic recoveries in several countries.
Kristalina Georgieva spoke via videoconference at The Davos Agenda virtual event on Friday, where she said that hiking U.S. rates could have collateral damage for countries with higher levels of dollar-denominated debt. Higher U.S. interest rates could make it more expensive for countries to service their dollar-denominated debt.
“Act now. If you can extend maturities, please do it. If you have currency mismatches, now is the moment to address them.” She said.
The IMF is expecting the global economic recovery to continue, Georgieva said but highlighted that it was “losing some momentum.”
As such, she suggested that a New Year’s resolution for policymakers should be “policy flexibility.”
“2022 is like navigating an obstacle course,” she said, given risks such as rising inflation, the Covid-19 pandemic, and high debt levels. The IMF warned in December that global debt hit $226 trillion in 2020 — the largest one-year rise since World War II.
