IMF says Fed has room to hold off on rate rise
Washington
THE International Monetary Fund said on Thursday that the US Federal Reserve has the room to hold off from raising interest rates for the moment amid a "pretty bumpy" global economic situation.
"Our general view is that they have flexibility to hold off," said IMF spokesman William Murray, adding that the Fed "should proceed gradually" with its planned series of rate hikes.
Mr Murray, speaking to reporters, said the Fund expects the central banks in economies such as the United States and Britain to begin raising rates eventually given the pickup in 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 said, and the IMF view is that the Fed "should proceed gradually" with its plan to begin raising rates for the first time since 2006.
The Fed has held its benchmark federal funds rate at the zero level since 2008 to pull the economy back from the economic crisis.
Since last year it 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 Mr Murray pointed out that US inflation and wage pressures, two key barometers for a Fed decision, "remain muted".
That means the US central bank "can afford to hold interest rates low until there are more tangible signs of wage or price inflation than are currently evident". When the Fed does move, Mr Murray stressed, its clear communication of policy intentions "is critical so that countries broadly around the world can adjust".
The prospect of a slow series of rate rises in the United States has, since two years ago, stirred capital outflows from emerging economies and helped send their currencies tumbling.
On China's recent market volatility, the IMF does not see the situation by itself as a reason to voice concern about including the yuan in its benchmark currency basket.
Mr Murray said the fund was on track to complete a review of its Special Drawing Rights basket by the end of the year. Beijing has pushed hard for the yuan to be included.
"Some of the recent volatility that we have seen in markets has been . . . some market reaction to the move to adopt a more flexible exchange rate in China," he said. "But that in itself is no reason for us to be voicing concern about China and the SDR basket."
Meanwhile, when the Group of 20 finance ministers and central bankers meet on Friday in Turkey, China's market turmoil is likely to be the biggest problem they don't do anything about. Slower growth in China and rising market volatility have boosted the risks to the global economy, the IMF had warned on Wednesday, describing a mix of potential dangers such as depreciating emerging market currencies and tumbling commodity prices.
But the G-20 is unlikely to come up with any concrete measures designed to address the spillover from the turmoil in the world's second-largest economy, or to call on Beijing to address structural issues such as rising bad debts.
Such lack of action could reinforce the perception among critics that the G-20 meetings are little more than a "talking shop" and a photo opportunity for policymakers, an impression Turkey - which holds the G20 presidency this year - has been keen to shake off.
Japan's Finance Minister Taro Aso said this week that it would be beneficial to have a "frank debate" at the G-20 on what is happening in the Chinese economy, including a discussion on its structural problems. But analysts say investors shouldn't hope for too much from the final communique expected to be released near the close of the gathering on Saturday. AFP, REUTERS
