NEW YORK, (Reuters) – Interest rates will continue to rise in Latin America due to rising inflation, even though economies are operating below their potential. This was according to the International Monetary Fund on Thursday.

“It’s likely that these interest rates increases will continue to in many countries over the next months. If there are signs of inflation expectations becoming less well-anchored, central banks will need to respond promptly,” Nigel Chalk (acting director of IMF Western Hemisphere Department), said in prepared remarks before a news conference.

The reopening of central banks all over the world has seen them tighten their monetary policy and adjust their language to address the spike in inflation after pandemic-induced lockdowns. Prices are rising due to transportation bottlenecks, as well as more costly commodities (food and materials).

The IMF predicts that Latin America and Caribbean economies will grow by 6.3% and 3.0% this year, despite the threat of inflation. This is after a drop in output of 7.0% during 2020.

The recovery is not going to happen quickly, as COVID-19 remains a critical factor.

It is important to note that countries that heavily rely on tourism like the Caribbean will continue to face challenges. It is predicted that tourism in the region will slowly rebound, with just 60% more visitors than pre-pandemic.

Chalk advised that recovery should be planned for a long and winding road. They should instead expect a slow, winding path ahead with some setbacks as the pandemic damage is slowly repaired.

Globally, the balance of risks is tilted towards the downside. While short-term growth is dependent on the replacement of policy support by a private sector demand boom, the recovery in China and the United States, which are major trading partners, have been crucial.

Chalk explained that “the outlook assumes a continued favorable external condition, high commodity price, and an unwinding pent up consumption and investment which has been restrained due to the pandemic.”

Health systems investment and coverage for vaccinations will probably remain the same. In some instances, governments may need to spend more on support for households.

Chalk stated, “But at the same moment, it will be crucial for policymakers to signal an credible commitment to putting back debt on a down path.”

Even though vulnerable groups are experiencing the most difficulty returning to work, fiscal discipline is needed. These trends, Chalk stated, “could take many years to reverse.”