The International Monetary Fund (IMF) believes the US central bank has room to postpone raising interest rates this month amid a “pretty bumpy” global economic situation, including fears of a slowdown in China.
Speaking to reporters in Washington on Thursday, IMF spokesman William Murray said the global lender saw “flexibility” on the part of the US Federal Reserve (Fed) to “hold off” on an interest rate hike in September and “proceed gradually.”
Murray said the IMF was expecting the central banks in Britain and the US to begin raising rates eventually given an acceleration of growth in their economies. But he suggested there was still time to wait before taking the first step.
“The situation globally is pretty bumpy,” he added.
The US Fed is currently considering increasing its benchmark interest rate for the first time since 2006. The fund rate has remained at the zero level since 2008 to stem the fallout from the international financial crisis and the great depression in the US. Since last year, however, the central bank has been flagging a likely first rate hike sometime this year, with eyes now on the September 16-17 policy meeting for a possible move.
But Murray pointed out that US inflation and wage pressures, two key barometers for a Fed decision, “remain muted.” That would mean, he said, the bank “can afford to hold interest rates low until there are more tangible signs of wage or price inflation than are currently evident.”
Should the Fed, nevertheless, chose to move on rates, he urged the bank to be clear about its policy intentions because this was “critical” to allow countries around the world to adjust.
The prospect of a slow series of rate rises in the United States has already unleashed capital outflows from emerging economies and helped send their currencies tumbling.
Cocktail of risks
In an assessment of global economic risks published on Thursday, the Washington-based fund also named a strengthening US dollar, falling commodities’ prices and a slowdown in China’s economy as dangers to global growth.
Coming ahead of a G20 finance ministers’ and central bankers’ meeting in Turkey, the report said: “Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a much weaker outlook.”
Amid the uncertainty, the IMF has already lowered its global growth forecast for 2015 to 3.3 percent, adding that it expects China’s economic output to expand by no more than 6.8 percent this year.
The IMF encouraged China to keep up its reform pace despite the recent turmoil on the stock markets and speculation about lower growth.
“The recent sharp equity market corrections should not discourage authorities from continuing with reforms to give market mechanisms a more decisive role in the economy, eliminate distortions and strengthen institutions,” the report said.
Despite the problems at hand, the IMF said it was confident growth would “pick up moderately” in the world’s advanced economies, not least helped by the impact of cheaper oil prices.
uhe/sgb (AFP, Reuters, dpa)