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Prepare for higher US interest rates, warns the IMF emerging economies. There is a risk of capital outflows and weakening currencies


The International Monetary Fund (IMF) has called on emerging economies to prepare for rising interest rates in the United States. He warned that if US interest rates rose unexpectedly fast, it could worry financial markets and lead to capital outflows and weakening currencies in emerging economies. The Monetary Fund stated this on its blog today.

The IMF expects that if the US Federal Reserve (Fed) tightens monetary policy gradually and announces its actions in a timely manner, the impact on emerging markets will not be large. However, he warns that rapid wage growth in the US or persistent supply chain shortfalls could lead to unexpectedly sharp price increases, which could force the Fed to raise interest rates faster.

“Emerging economies should prepare for waves of economic turbulence,” the IMF said. In this context, he pointed out not only the possibility of unexpectedly rapid interest rates in the US, but also the possibility of a renewed intensification of the covidu-19 pandemic.

President of the Federal Reserve Bank of St. Louis James Bullard said last week that the US Federal Reserve could start raising interest rates in March, earlier than expected. He added that the Fed is now in a “good position” to take even stronger action against inflation if necessary, Reuters reported.

“The Fed could worry financial markets and tighten financial conditions around the world by raising interest rates faster,” the IMF said. “This development could be accompanied by a slowdown in demand and foreign trade in the US and could lead to an outflow of capital and currency depreciation in emerging economies,” the monetary fund added.

The IMF has called on emerging economies, which are now facing stronger inflationary pressures, to take swift action to boost their currencies and raise interest rates. According to the fund, countries with high foreign currency indebtedness should then hedge as much as possible against the negative effects of exchange rate fluctuations.

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