Central banks face 'difficult balancing act': IMF chief

Central banks worldwide are entering a "challenging terrain" as they begin to lower interest rates in response to declining inflation, according to International Monetary Fund Managing Director Kristalina Georgieva, speaking at an event alongside European Central Bank President Christine Lagarde in Washington on Friday.

In recent months, central banks across the Atlantic have made significant rate cuts. The US Federal Reserve reduced its benchmark lending rate by half a percentage point on Wednesday, aiming to stimulate demand. This follows earlier cuts by the European Central Bank (ECB), which has lowered its key rate twice this year by a quarter percentage point.

Georgieva emphasized the delicate balancing act that central banks must perform. "They must ensure that inflation sustainably returns to target while avoiding excessively tight policies that could stifle growth," she stated.

Despite economic activity being weaker than desired, Georgieva noted its surprising resilience. "While inflation is retreating and rates are decreasing, the likelihood of recession seems minimal," she observed.

Meanwhile, the Bank of England opted to keep rates unchanged on Thursday after a single cut, as UK inflation continues to exceed targets. Lagarde highlighted the ECB's proactive measures in maintaining stable inflation expectations, asserting that inflation is on course to reach the two percent target by mid-next year.

However, she cautioned, "Is the uncertainty gone? No, there is still plenty of that around." As central banks proceed, they will need to carefully navigate the complexities of the current economic landscape.