The International Monetary Fund (IMF) has urged advanced economies to maintain accommodative monetary policies in a note ahead of the G20 meeting of finance ministers and central bank governors on September 4-5.
The organisation said: “The expected boost in economic activity from lower oil prices has not materialised, and lower energy costs are keeping inflation low. Hence, monetary policy must stay accommodative to prevent real interest rates from rising prematurely.”
The IMF pointed to “sizable output gaps” in many developed economies as it suggested accommodative monetary policy remained “essential”.
The note opened: “Global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies.”
It highlighted US monetary policy, where the Federal Reserve is expected to be the first central bank to raise interest rates this year.
The IMF said the Federal Open Market Committee’s decision on the timing of a rate rise “should remain data dependent” and added, “with little evidence of meaningful wage and price pressures so far, the normalisation is expected to be gradual”.
It noted that the European Central Bank’s expanded asset purchase program had “improved confidence and financial conditions, and raised inflation expectations initially”, but that inflation expectations have since reversed and suggested the program should be extended if “there is not sufficient improvement in inflation”.
The IMF acknowledged financial market volatility had “risen sharply” since early August and also addressed the “repercussions” of China’s growth transition.
