BAKU, Azerbaijan, July 28. Interest rates in some advanced economies are expected to decline in 2023 and 2024, Trend reports via the latest World Economic Outlook (WEO) update from the International Monetary Fund (IMF).
According to the report, the rise in real rates was a key factor in increasing bond yields by maturity in advanced economies, and lower market indicators of inflation expectations partially offset real rates during this period.
While long-term inflation expectations (on the five-year horizon) remained relatively stable at elevated levels, expectations on the five-year horizon have largely returned to the levels preceding the Russian-Ukrainian war, which partly reflects the growing concern of investors about the slowdown in aggregate demand in the near and medium term, the outlook said.
Thus, given these concerns, current market expectations for policy rates suggest declines in 2023 and 2024 in some developed countries, the IMF added.
Meanwhile, according to the outlook, the inflation rate in 2022 is expected at 6.6 percent (0.9 percent up) in advanced economies, and 9.5 percent (0.8 percent up) - in EM and developing economies.
“Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances. In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent,” the report said.
As Pierre-Olivier Gourinchas, Economic Counselor and Director of the Research Department at the IMF noted during the press conference timed to the WEO's publication, “interest rates are rising faster than expected. With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers. Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them. Although central banks should stay in course with it in order to mitigate inflation risks”.
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