Central banks must balance energy inflation with demand softening, IMF's Georgieva says

WASHINGTON, April 9 (Reuters) - Central bankers must be prepared to tighten monetary policy to avoid an inflationary spiral if war-driven energy price shocks are sustained, but also need to watch for a softening of demand that would argue against rate hikes, International Monetary Fund Managing Director Kristalina Georgieva said on Thursday.

Georgieva told an event to preview next week's IMF and World Bank annual meetings that if the Iran war ceasefire holds and the oil supply shock is short-lived, they may be able to hold steady with only a slight rise in inflation. This would translate to a de-facto easing of monetary policy.

She cautioned against an urge to rush into tightening rates by central bankers who were slow to respond to post-COVID-19 inflation, telling them to stay alert to data.

"Be watchful, concentrate on conditions, because if you tighten prematurely and unnecessarily, you're throwing cold water on growth," Georgieva said. "And then the demand may shrink. And then, from a supply shock you get into a supply-and-demand shock. And it may get ugly." (Reporting by David Lawder; Editing by Chizu Nomiyama)