New | World Bank urges Fed to wait on rates, sees slow global growth

The World Bank on Wednesday said the US Federal Reserve should hold off on a rate hike while cutting its global growth outlook for this year and that countries should "fasten their seat belts" as they adjust to lower commodity prices.

Kaushik Basu, the World Bank’s chief economist, said the Fed should push back a rate hike until next year to avoid worsening exchange rate volatility and crimping global growth.

"If I were advising the US Fed, I would recommend that (higher rates) happen next year instead of late this year," due to the mixed economic picture, Basu said, adding that it was his own view rather than that of the World Bank as a whole.

"My own concern is that a relatively early move (in US rates) could cause an exchange rate movement, strengthening of the dollar, which will not be good for the US economy" and have negative repercussions for other countries, he said.

In its twice-yearly Global Economic Prospects report, the global development lender predicted the world economy would expand 2.8 per cent this year, below its 3 per cent prediction in January.

It said low commodity prices, especially the roughly 40 per cent drop in oil prices since last year, had hurt commodity exporters more than anticipated. The World Bank also warned countries to prepare for higher US interest rates, which would raise borrowing costs for developing economies.