IMF’s Lagarde warns of risk of deflation

 
Kate McCann
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THE HEAD of the International Monetary Fund, Christine Lagarde, has warned that the economic recovery is still fragile, despite recent optimism about growth.

During a speech in Washington, Lagarde said: “If inflation is the genie, then deflation is the ogre that must be fought decisively,” adding that the rising risk of deflation could prove devastating for the economy.

She also cautioned that the US Federal Reserve’s gradual withdrawal of monetary stimulus could push up interest rates and destabilise markets as a result. “Overall, the direction is positive, but global growth is still too low, too fragile, and too uneven,” she said. Lagarde added that more rapid adjustments could cause volatility, which would hit some emerging markets in particular.

Developing economies, which had been the engine of the global recovery after the 2008 financial crisis, are now slowing due to cyclical factors, she added.