IMF warns against rate hikes after gloomy global outlook

by Julia Corderoy21 Jan 2015
The International Monetary Fund has lowered its forecasts for global economic growth, saying that although falling oil prices are likely to support growth, it won’t be enough to offset persistent negative factors.

In an update to its Outlook released on Tuesday, the IMF revised down its global forecast from 3.8% to 3.5% per cent in 2015. Its forecast for 2016 also dropped 0.3% to 3.7%.

“Global growth will receive a boost from lower oil prices, which reflect to an important extent higher supply. But this boost is projected to be more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies,” the IMF said in its World Economic Outlook update. 

The IMF is now recommending advanced economies maintain accommodative monetary policy to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

“In particular, if the further declines in inflation, even if temporary, lead to additional downdraft in inflation expectations in major economies, monetary policy must stay accommodative through other means to prevent real interest rates from rising,” the update said.