WASHINGTON: Central banks' interest rate hikes aimed at combating inflation could exacerbate a deepening,"dangerous divergence" between advanced and developing economies, International Monetary Fund Managing Director Kristalina Georgieva said Wednesday.
The Federal Reserve and others have signalled that rate hikes may be imminent in 2022. The"spillover impact on emerging markets .... can add fuel to the fire of divergence," Georgieva said. Rate hikes in advanced economies raise the cost of borrowing and siphon away investments from emerging markets.
"Yes, the recovery is likely to continue, but against stronger winds," she said Wednesday, citing inflation and growing debt levels. Social unrest seen in 2019 was also expected to re-emerge this year, which could pose challenges for policymakers, she added.
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