IMF warns against rate rises as growth falls short

The International Monetary Fund has urged the leading central banks to hold back on hiking interest rates amid slower global economic growth.

In an agenda-setting note to G20 finance ministers and central bank governors, who are meeting this weekend in Ankara, Turkey, the IMF says the world’s largest economies need to raise their medium term growth performance up from the current “moderate” level, the FT reports.

It says: “After six years of demand weakness, the likelihood of damage to potential output is increasingly a concern.”

The fund says an expected boost from lower oil prices has failed to materialise and with low inflation in all advanced economies, “monetary policy must stay accommodative to prevent real interest rates from rising prematurely”.

In July the IMF lowered its global growth forecast for 2015 to 3.3 percent and forecast growth in China would slow to 6.8 percent.

Despite China causing continued market turmoil, the IMF says Chinese authorities should continue to go ahead with reforms to liberalise the economy, Reuters reports.

It says: “The recent sharp equity market corrections should not discourage the authorities from continuing with reforms to give market mechanisms a more decisive role in the economy, eliminate distortions, and strengthen institutions.”

The IMF also calls on the Federal Reserve, which will reveal the latest US jobs figures tomorrow, to “remain data-dependent” and not take any steps towards raising interest rates “with little evidence of meaningful wage and price pressures so far”.

The US central bank is expected to raise rates this month. In June, IMF boss Christine Lagarde said the Fed should not raise interest rates until next year.

The IMF also suggests the ECB expands its QE programme “if there is not sufficient improvement in inflation consistent with meeting medium-term price stability objectives”.

In July, the fund warned that risks remain of stagnation in the eurozone area with the medium-term outlook for growth being “subdued”.