Central banks face difficult balancing act: IMF chief [Video]

Central banks face a “difficult balancing act” as they start lowering interest rates around the world in the face of falling inflation, the head of the IMF said Friday.

Central banks on both sides of the Atlantic have cut rates this year, with the US Federal Reserve reducing its key lending rate by half a percentage point earlier this week in a bid to boost demand, following in the footsteps of the European Central Bank (ECB).

But as they do so they must tread carefully, International Monetary Fund Managing Director Kristalina Georgieva said at an event with ECB President Christine Lagarde in Washington.

“Central banks face a difficult balancing act,” Georgieva said. “They must ensure that inflation sustainably returns to target and remains there, while avoiding the risk of excessively tight policies.”

“While clearly weaker than we would have wanted, economic activity has been remarkably resilient,” she added. “While inflation …