Global community shall be prepared for stronger dollar, higher interest rates –IMF

DUBAI –Christine Lagarde, the Managing Director of the International Monetary Fund (IMF), said here on Sunday that plans by the Trump administration to launch a trillion dollar investment program to boost US infrastructure will lead “most likely” to higher growth in the world’s biggest economy and therefore to a stronger greenback and rising interest rate level.

Speaking at the 5th edition of the annual World Government Summit (WGS) on global economic prospects, Lagarde said the Washington-based IMF, whose mission is to secure global financial stability, “recognized change, and due to plans announced by the new US administration to launch a major financing program to boost domestic infrastructure, we have reasons to be optimistic for US growth.”

Because higher US growth at current low unemployment rates will trigger interest rate hikes by the US Federal Reserve to curtail inflation, Lagarde urged the global community to take currency fluctuations on foreign exchange markets into account when planning fiscal budgets.

“My message to governments and decision makers is to be prepared for a tighter US monetary policy, be resilient! Build up buffers so that you can deal with a stronger US dollar and higher interest rates.”

US President Donald Trump promised a one trillion dollars spending plan in order to upgrade airports, ports, roads and bridges across the US and to create jobs. He also promised to slash taxes and to impose barriers of trade for foreign firms and for US companies which produce outside the country.

“In general, a better US economy is always good for the global economy,” said Lagarde. “But we have to permanently assess and re-assess developments.”

She said that there is still a lot of “work in progress” in the Trump administration. “We have seen a lot of announcements, many tweets, so we have to assess what will be realized.”

The three-day WGS 2017 runs until Tuesday, Feb. 14.