Sizeable risks that inflation will remain high: IMF’s Gopinath

The International Monetary Fund’s official said she sees sizeable risks that inflation will remain high or accelerate in many emerging markets and urged central banks to keep monetary policies tight.

IMF First Deputy Managing Director Gita Gopinath told a conference hosted by the Central Bank of Brazil that markets were probably “too optimistic” about what it would take to bring down inflation in emerging markets.

“Despite encouraging signs, I am worried that price pressures seem entrenched in many economies and that upside inflation risks are sizeable,” she said in remarks prepared for the event.

“Central banks must remain resolute in keeping policies tight and recognize that insufficient monetary tightening now may necessitate even more painful actions down the road,” she said. That was a lesson learned from the high inflation period of the 1970s and it “very much applies today,” Gopinath said.

She said fiscal restraint could support the fight against inflation by central banks and financial tools could improve tradeoffs in the event of pronounced financial stress, if judiciously used.