IMF urges central banks to hold off rate hikes amid global slowdown

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 met at the weekend in Ankara, Turkey, the IMF said the world’s largest economies needed to raise their medium-term growth performance from the current “moderate” level, the FT reports.

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

The fund said an expected boost from lower oil prices had 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 per cent and forecast growth in China would slow to 6.8 per cent.

Despite China causing continued market turmoil, the IMF said Chinese authorities should proceed with reforms to liberalise the economy, Reuters reports.

It said: “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 called on the Federal Reserve 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 suggested the ECB should expand 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 remained of stagnation in the eurozone area.