IMF to G20 Central Banks: Don’t raise interest rates just yet

The central banks of the world should delay raising any interest rates, says the International Monetary Fund (IMF) in a new letter to group of 20 finance ministers and central banks.

The IMF argued that there are still plenty of risks to the global economic growth, and hiking rates could derail any momentum that has been made since the global economic collapse. Instead, advanced economies should instead focus on “growth supportive policies.”

Simply put: interest rates should be increased later instead of sooner. The European Central Bank (ECB) already followed this advice by keeping interest rates in negative territory during a meeting Tuesday.

According to the IMF, global growth in the first half of 2014 was lower than the second half of 2014. This suggests that a greater slowdown is coming for emerging markets and the recovery in advanced economies will be weaker.

“In advanced economies, accommodative monetary policy remains essential. Fiscal policy should be growth friendly, including through increased infrastructure investment,” wrote the IMF. “In many emerging economies, macroeconomic policy space to support growth is more limited, with inflation still above target in some economies, and fiscal positions weaker than desirable in others.”

The IMF added:

“Decisive structural reforms are needed to raise potential output and productivity across the G-20  members. Labor market reforms in advanced economies undergoing population aging should aim at raising labor participation, and actions to increase labor demand and remove impediments to  employment are also needed in euro area economies and some emerging markets.”

This isn’t the first time that the IMF has talked about interest rates. Earlier this summer, IMF director Christine LaGarde urged Federal Reserve Chair Janet Yellen to delay any rate hike until sometime in 2016 (SEE: World Bank to Federal Reserve: Delay any rate hike until 2016). The United States central bank’s Federal Open Market Committee will decide in the coming days whether or not to increase interest rates for the first time since 2006.

On Friday, we should get a better understanding of Fed’s movements because the jobs numbers will be reported.