Both Ajay Banga, the institution’s president, and Chief Economist Indermit Gill warned that the fallout from the sudden shift to an era of elevated borrowing costs may be tough.
The view from the Washington-based development lender followed Tuesday’s assessment by its sister institution, the International Monetary Fund, that inflation next year will be faster than previously thought, while most of the world now faces weaker growth than before. Gill cited the example of the 1970s, when the Federal Reserve also durably kept rates high, and said that one lesson then was that the tightening cycle didn’t just take one or two years.
The problem is that nations with large piles of borrowings then face a “crowding out” effect on private investment, Gill observed.
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