World Bank latest to urge Fed to hold rates until 2016

The World Bank has become the latest global organization to urge the U.S. Federal Reserve to delay raising interest rates until 2016, amid growing expectations that the central bank could hike as early as September.

The financial institution said on Wednesday that keeping rates at record lows would help avoid the kind of financial market volatility witnessed during the "taper tantrum" of summer 2013.

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Janet Yellen
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Janet Yellen

It comes as strong jobs data in the U.S. have boosted expectations that September may be the month when the Fed raises interest rates for the first time in nine years.

Lead author of the World Bank's bi-annual Global Economic Prospects report, Franziska Ohnsorge, said while the "lift-off" of rates would likely proceed smoothly, the risks surrounding emerging markets are more acute.

"If markets are surprised or think the interest rate hike is earlier or higher than warranted by the strength of the U.S. economy then there could be financial market volatility," she told CNBC Thursday.

"The taper tantrum was a reminder that even an event that has been long anticipated, that everyone knows is coming, it can still, in some specifics, surprise markets."

Ohnsorge warned that developing country capital flows could be hit after a rate hike.

"That is manageable on average across developing countries, however some developing countries may come under pressure disproportionately," she added.

The World Bank's warning comes after the International Monetary Fund (IMF) said last week that the Fed should delay a rate hike until the first half of 2016.

The IMF said that until there are signs of a pickup in wages and inflation, the conditions were not right to raise rates, which could have major consequences for the rest of the world.

"Based on the mission's macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," the fund said in its annual assessment of the world economy.