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World Bank warns central banks 'lifting rates will add to inequality'
The World Bank has slashed its global growth forecast as a result of the war in Ukraine and COVID-related shutdowns.
World Bank warns central banks 'lifting rates will add to inequality'
The World Bank has slashed its global growth forecast as a result of the war in Ukraine and COVID-related shutdowns.
The World Bank has lowered its 2022 growth rate to 3.2 per cent from 4.1 per cent, citing reversals in development for education, health and gender equality, including reduced commercial activity and trade.
In a statement issued on Monday, president David Malpass said the war in Ukraine and China's COVID-related shutdown are pushing global growth rates even lower and poverty rates higher.
Ahead of the 2022 International Monetary Fund and World Bank Group 2022 Spring Meetings, taking place this week, Mr Malpass announced he expects to discuss a new 15-month crisis response envelope of around US$170 billion to cover April 2022 through June 2023, with around US$50 billion of this amount to be committed in the next three months.
To date, the World Bank Group has mobilised US$157 billion as part of its response to the COVID-19 pandemic.
“This is a continued, massive crisis response given the continuation of the crisis,” Mr Malpass said.
He noted that food security, debt and inflation, as well as Russia’s invasion of Ukraine will feature heavily at the spring meetings.
According to Mr Malpass, the World Bank has mobilised nearly US$1 billion in emergency financing for Ukraine, and has announced another $1.5 billion to support essential government services.
Debt and inflation key issues
Turning to debt and inflation, Mr Malpass said “these are two big problems facing global growth”.
“Due to high debt and deficit levels, countries are under severe financial stress.
“Sixty per cent of low-income countries are already in debt distress or at high risk of it,” he warned.
The World Bank Group president had a strong message for central banks, noting that policies need to be adjusted to deal with the inflation problem, which is “causing immense strain”.
He warned that simply lifting interest rates will only add to inequality.
“Central banks need to use more tools under current policies,” Mr Malpass said.
“The inequality gap has widened materially, with wealth and income concentrating in narrow segments of the global population. Interest rate hikes, if that's the primary tool, will add to the inequality challenge that the world is facing.”
As such, he encouraged central banks to use more of their tools, “not just interest rates”.
“Capital is being misallocated now.
“One of the focal points should be using all the central bank tools so that capital is allocated in a way that helps increase supply.”
Some of the tools, Mr Malpass said, include shortening the duration of their portfolio; encouraging supply through their regulatory policies; and providing forward guidance that fosters currency stability.
The International Monetary Fund and World Bank Group 2022 Spring Meetings are taking place from Monday, 18 April, through Sunday, 24 April.
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