IMF Warns Emerging Markets As Vulnerable to US Fed Tapering

Advanced economies led by the United States will increasingly drive global growth while emerging countries are at risk of slowing due to tighter U.S. monetary policy, the International Monetary Fund said in a note obtained by Reuters on Wednesday.

In the surveillance note, prepared for the Group of 20 meeting in St. Petersburg, the IMF urged strengthened global action to revitalize growth and better manage risks, warning that some downside risks have become more prominent.

Emerging economies are seen particularly vulnerable to a tightening of U.S. monetary policy and the IMF recommended that policy makers be ready to handle a rise in financial instability.

“Policy makers should allow exchange rates to respond to changing fundamentals but may need to guard against risks of disorderly adjustment, including through intervention to smooth excessive volatility,” the IMF said.

The U.S. Federal Reserve may start tapering its stimulus program as early as this month, the IMF noted. The next Fed policy meeting is set for September 17-18.

“The greatest worry may well be a prolonged period of sluggish global growth (a plausible downside),” the IMF said, adding it was revising downwards its near-term projections for emerging economies. Brazil, China and India account for much of that slowdown.

via Reuters

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