Nusa Dua (Indonesia) | Central bank rate hikes were a “necessary development”, International Monetary Fund (IMF) chief Christine Lagarde said on Thursday, a day after Donald Trump sent global markets tumbling by calling Fed increases “crazy”.
“It is clearly a necessary development for those economies that are showing much-improved growth, inflation that is picking up… unemployment that is extremely low,” Lagarde told a press briefing at the IMF’s annual meeting in Bali.
“It’s inevitable that central banks make the decisions that they make.” Trump’s comments Wednesday triggered a sell-off on Wall Street, with Asian markets opening sharply lower on Thursday in response. “I think the Fed is making a mistake. It’s so tight. I think the Fed has gone crazy,” the US president said.
But Lagarde added that uncoordinated developed-country rate hikes were contributing to destabilising capital outflows from emerging markets.
The financial outlook, combined with global uncertainty over trade tensions between Washington and trading partners like China, has created “a bit of an unprecedented situation” for the world economy, said Lagarde. “Clearly as a result of (rate hikes)… we see and we will continue to see capital flow movements,” she added.
“The fact that large central banks of advanced economies are not exactly all moving at the same pace is also probably accelerating that phenomenon.”