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 Kaushik Basu, the World Bank's chief economist, said the Federal
Reserve should hold off on a rate hike until next year to avoid
worsening exchange rate volatility and crimping global growth.
In its twice-yearly Global Economic Prospects report, the global
development lender predicted the world economy would expand 2.8
percent this year, below its 3 percent prediction in January.
It said low commodity prices, especially the roughly 40 percent drop
in oil prices since last year, had hurt commodity exporters more
than anticipated. The World Bank also warned countries to prepare
for higher U.S. interest rates, which would raise borrowing costs
for developing economies.
"We at the World Bank have just switched on the seat belt sign,"
Basu said in a press conference in Washington. "We are advising
nations, especially emerging economies, to fasten their seat belts."
Basu said lower commodities prices eventually should help global
growth, and the World Bank kept its global growth forecasts
unchanged for next year and 2017.
It also predicted that India would be the fastest-growing major
economy for the first time this year, growing at a rate of 7.5
percent, up from the previous forecast of 6.4 percent.
But the World Bank cut its 2015 growth forecast for developing
countries to 4.4 percent, from 4.8 percent in January, pointing to
the drag of expected recessions in Brazil and Russia.
It also lowered the growth outlook for the United States to 2.7
percent this year, from 3.2 percent in January, and to 2.8 percent
next year, from a previous forecast of 3 percent. The U.S. economy
slumped at the beginning of 2015 due in large part to bad winter
weather, a strong dollar, port disruptions and deep energy sector
spending cuts.
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"If I were advising the U.S. 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 U.S. rates)
could cause an exchange rate movement, strengthening of the dollar,
which will not be good for the U.S. economy" and have negative
repercussions for other countries, he said.
(Reporting by Anna Yukhananov; Editing by Paul Simao)
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