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IMF urges EU to keep interest low

THE International Monetary Fund (IMF) said there are signals of growth in Ireland but warned the ECB to hold off interest rate hikes to give the euro area banking system time to repair.

The IMF downgraded its growth expectations for the economy but said that there were some positive signs as it expects the economy to grow 0.5pc in the year.

The organisation said that a decision on changing the interest rates charged to countries under the EU's bailout rules is "urgently needed".

It says low interest rates are appropriate as long as there is low core inflation and lots of excess capacity.

"The ECB's extraordinary measures to support the banking industry should only be removed gradually as systemic uncertainty recedes," it said in its outlook

The IMF also says European governments should urgently cut the interest rates charged on loans from the European Financial Stability Fund.

In its World Economic Outlook report the IMF said it expects consumer prices to rise in Ireland this year and next by 0.5pc and the unemployment rate to hit 14.5pc in 2011.

And it expects unemployment in Ireland to drop to 13.3pc in 2012.

Exports as a share of GDP rose by much more in Ireland last year, according to the IMF, which it said possibly reflects the greater decline in unit labour costs.