According to a report published by the International Monetary Fund, the European Central Bank and other policymakers in Europe should keep interest rates at current levels until they can keep inflation under control despite low growth. conditions in which inflation has declined from its peak, AP reports.

The International Monetary Fund says the cost of underestimating the sustainability of inflation could be painful, and the result would be another painful round of interest rate hikes that could seriously affect the economy, AP and Agerpres noted.

The European Central Bank and other central banks outside the eurozone “reached the maximum interest rate and some started to cut interest rates. However, a prolonged restrictive approach is still needed to ensure that inflation returns to the target level,” the report said.

Historically, it takes an average of three years for inflation to return to lower levels, and some anti-inflation campaigns take even longer. While central banks appear to have ended their interest rate hike streak, missing the target and returning to raising interest rates could cost a percentage point of annual economic growth, the IMF warned.

Director of the European Department of the IMF, Alfred Kammer, drew attention to the “premature celebration”. “It is cheaper to tighten monetary policy more than to loosen it too much. The ECB, which at its meeting on October 26 left interest rates unchanged for the first time in the last year, is in a good situation,” the IMF official assessed.

Europe is headed for a “soft landing”

According to a preliminary estimate published on October 31 by Eurostat, the annual rate of inflation in the euro area decreased to 2.9% in October from 4.3% in September and 5.2% in August. The figure announced by Eurostat is better than analysts’ estimates, which expected inflation to drop to 3%.

Europe is heading for a “soft landing” after the impact of rising interest rates, and the IMF is not predicting a recession, while estimates of economic development remain uncertain and the situation could worsen more than expected.

According to IMF forecasts, the eurozone should register growth of 0.7% this year and 1.2% next year. If inflation falls faster than expected, real consumer spending and incomes will rise and economic growth may improve. But the escalation of the war in Ukraine and the expansion of sanctions against Russia, as well as disruptions in trade, could lead to a decline in economic growth.

So far, the conflict in the Middle East has led to a temporary increase in oil prices, but has not disrupted the European economy, Kammer said.