WASHINGTON: Developing countries must prepare an increase in US interest rates, said the international monetary fund, the warning that the Federal Reserve movement is faster than expected to sound the financial market and trigger the capital outflow and currency depreciation abroad.
In a blog published on Monday, the IMF said it expects strong US growth to continue, with inflation likely to be moderate at the end of the year.
Global lenders will release fresh global economic estimates on January 25.
It is said that the tightening of US monetary policy gradually and the telegraph is likely to have little impact on developing country markets, with foreign demand offset the impact of the increase in financing costs.
But broad-based US wage inflation or sustainable supply barriers can increase prices more than anticipated and fuel for faster inflation, triggering a faster interest rate increase by the US Central Bank.
“Developing countries must prepare the potential of economic turbulence battles,” the IMF said, quoting the risks caused by a faster increase in Fed interest rates and rising pandemics.
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President Louis Fed James Bullard this week said The Fed could raise interest rates immediately after March, months earlier than expected, and now in “good positions” to take more aggressive inflation measures to inflation, as needed.
“Fed levels that are increasing faster can generate financial markets and tighten financial conditions globally.
This development can come with a slowdown in demand and US trade and can cause capital outflows and currency depreciation in emerging markets,” Write an IMF senior official on the blog .
It is said that the market is developing with high public and personal debt, foreign exchange exposures, and lower account balances have seen the movement of their currencies which are greater relative to the US dollar.
The funds say the developing market with stronger inflation pressures or weaker institutions must act quickly to let the currency depreciate and raise the benchmark interest rate.
It urges the central bank to communicate their plans clearly and consistently to tighten policies, and say countries with a high level of debt in foreign currencies must look for their exposure to which is feasible.
The government can also announce plans to increase fiscal resources by increasing tax revenues gradually, implementing retirement and subsidies, or other steps, he added.