Expansionary monetary policy maintained by most of the advanced economies will only have a small impact on inflation as long as the central banks are free from political constraints, the International Monetary Fund said in a new study on Tuesday.
"Independent central banks reduce risk that policies to stimulate economy will ignite prices," the global lender said in an analysis presented in its upcoming World Economic Outlook (WEO) report. "As long as central banks are free from political constraints, stimulatory monetary policy is entirely appropriate given the economic slack in most advanced economies today," it noted.
In most advanced economies interest rates are close to zero and the central banks there are pursing strong monetary easing to support a flagging economic recovery. The Bank of Japan last week unveiled unprecedented stimulus with an aim to end deflation and spur growth. The Federal Reserve, the Bank of England and the European Central Bank also maintain an expansionary monetary policy.
According to the study, an essential element behind the anchoring of inflation expectations is the independence of central banks.
"The combination of a relatively flat Phillips curve" and "strongly anchored inflation expectations implies that any temporary overstimulation of the economy would have only small effects on inflation" the study said. Phillips curve is a small response of inflation to unemployment fluctuations.
The study pointed out that inflation barely budged during the Great Recession despite rising unemployment in contrast to recessions in the 1970s and 1980s, when inflation fell much more.
According to IMF, the stability of inflation in recent years reflected two key factors namely, consumers confidence that inflation will remain close to targets set by the national central banks and the more muted response of inflation to changes in cyclical unemployment.
The report, however, cautioned that the conclusion that monetary stimulus is unlikely to cause strong inflationary pressures should not induce complacency among policymakers.
The study cited experiences of Spain and Ireland in the 2000s when build-up in economic imbalances and a rampant inflation of asset prices including for housing occurred despite low consumer price inflation.
In another chapter of the analytical report, the IMF said that low-income countries have bounced back in the past two decades and are on a stronger economic footing today than before the 1990s, and therefore better placed to stay on course.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.