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Global Rate Rises Are Healthy: Imf Chief

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Global rate rises are healthy: IMF chief

Wed May 24, 2006 4:25 AM ET

By Liau Y-Sing

KUALA LUMPUR (Reuters) - Rises in global interest rates are healthy and policy makers and central banks need to keep a watchful eye on inflation, the chief of the International Monetary Fund said on Wednesday.
But the global economy is not headed for a long spell of high inflation and credit costs, Rodrigo Rato told Reuters in an interview in the Malaysian capital.
"The world economy has strong prospects of growth in this year and next year," the IMF's managing director said.
"In many economies, the path of recovery is very strong and many economies are working at capacity," he added. "That, of course, also puts strains on inflationary pressures so inflationary pressures should be a source of vigilance."
Fears that rising global inflation would force the U.S. Federal Reserve to continue lifting interest rates have dealt a blow to equity and commodity prices, which have fallen sharply over the past week from peaks hit in late April and early May.
Rato said it was healthy to see central banks reducing monetary stimulus and that U.S. rates needed to "accommodate to a more neutral stance."
"Monetary stimulus, if it is sustained over a long period of time, will create very difficult monetary and inflationary consequences, so it's healthy that monetary stimulus is reduced and that monetary policy move to more neutral levels," he said.
"But at the same time, of course, that will have consequences on interest rates and people should be aware of that."

And what might those consequences be I wonder :rolleyes:

Monetary stimulus maintained over a long period of time = HPI

Reversal of that stimulus over a short period of time = HPC

Simple equation.

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