IMF warns against rate rises by leading economies

The IMF urged the world’s leading central banks on Thursday to refrain from raising interest rates in a bid to boost spending in the global economy when risks to growth were mounting.

The fund’s message to the most powerful central bankers and finance ministers travelling to Ankara for a Group of 20 meeting at the weekend is that the performance of the majority of economies is again falling short of expectations at the beginning of the year.


The IMF is calling for action to prevent growth rates from faltering and to raise the medium term performance of the world’s largest economies from the current “moderate” level.

The Federal Reserve, which is considering raising US interest rates this month, was not alone in the line of the fund’s fire. In an agenda-setting note to G20 finance ministers and central bank governors, the IMF said that 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”.

Ahead of Friday’s official figures on US jobs, the fund called on the Fed to “remain data-dependent” and not take hasty action “with little evidence of meaningful wage and price pressures so far”. Christine Lagarde said in June the Fed should not raise interest rates until next year.

It suggested the ECB should also expand its programme of quantitative easing in which it creates euros to pump into the economy through the purchase of government bonds. “The program should be extended if there is not sufficient improvement in inflation consistent with meeting medium-term price stability objectives,” it said in a clear message ahead of the ECB’s monetary policy meeting on Thursday.

And the IMF called on the Bank of Japan to stand ready for further easing.

The warnings from the fund will create a difficult backdrop to the G20 finance ministers’ meeting this weekend, which was supposed to have been a quiet affair, but has taken on greater significance amid financial market volatility and fears that a slowing China will derail the global economy.

The IMF made it clear that its existing forecasts expecting improved performance in the second half of 2015 were now out of date for the majority of the world’s largest economies. Growth had already fallen short of its predictions in the US, eurozone, Japan and most poorer economies.


One positive message was that although all eyes are now fixed on China, it believes growth in the first half of 2015 was “broadly in line with previous forecasts”, and although investment had slowed, “consumption growth remained steady”.

More important than its update on trends so far this year, the IMF warned that risks to the health of the global economy had risen and “a simultaneous materialisation of some of these risks would imply a much weaker outlook”.

The risks were higher in poorer countries, particularly those more exposed to commodity price weakness, those with significant US dollar-denominated debts and those most dependent on Chinese demand for their exports.

To boost the resilience of economies to heightened risks, the IMF urged governments to press ahead with reforms that would boost medium-term economic performance.

“After six years of demand weakness, the likelihood of damage to potential output is increasingly a concern,” it said, putting emphasis on reforms such as efforts to boost participation in the labour market that both increase demand and medium-term growth.

One of the problems for the G20 finance ministers is that their record in sticking to commitments made at meetings such as that in Ankara is at best patchy. The G20 information centre, based at the University of Toronto, calculated that countries had complied with only 63 per cent of the commitments their leaders made at the Brisbane summit last November.




Fonte: FT