Global central banks need to make clear to financial markets the probable need for interest rates to remain higher for longer in order to bring inflation sustainably back down to target and avoid a rebound in price pressures, the International Monetary Fund said on Thursday, Reuters reported. The warning comes amid a significant easing in financial conditions since October as investors looked past the steep run up in interest rates by central banks last year designed to bring down an inflation rate that breached 6% in more than 80% of the world's economies. Instead, as central bankers near a peak in their policy rates and inflation has begun to recede, investors have been betting on a quick pivot to rate cuts. "Central banks should communicate the likely need to keep interest rates higher for longer until there is evidence that inflation — including wages and prices of services — has sustainably returned to the target," the head of the IMF's Monetary and Capital Markets Department, Tobias Adrian, and his two deputies wrote in a blog post. "Loosening prematurely could risk a sharp resurgence in inflation once activity rebounds, leaving countries susceptible to further shocks which could de-anchor inflation expectations," they added.
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