The impact of the Federal Reserve (Fed) tightening could be great for the most vulnerable emerging economies, warns the International Monetary Fund (IMF). In a post on its blog, the organization points out that, in recent months, emerging markets with high public and private debt, foreign exchange exposures and smaller current account balances have already had greater movements of their currencies against the dollar. The combination of slower growth and heightened vulnerabilities could create adverse cycles for such economies, assesses the IMF.
The IMF continues to expect robust growth from the US, with inflation likely to moderate later this year. Interest rates are set to rise, and history shows that the effects for emerging markets are likely to be benign if the tightening is gradual, well telegraphed and in response to a strengthening recovery, he says. Emerging market currencies could still depreciate, but foreign demand would offset the impact of rising financing costs, the Fund notes. On the other hand, faster rate hikes could jolt markets and tighten conditions around the world, developments that could come with a slowdown in US demand and trade, and could lead to capital outflows and currency depreciation in emerging markets. alert.
In response to tighter financing conditions, emerging companies must adapt the response based on their
circumstances and vulnerabilities, points out the IMF. Those with the credibility to contain inflation can tighten monetary policy more gradually, while others with stronger inflation or weaker institutions must act quickly and comprehensively, he says. In either case, the responses should include depreciating currencies and increasing benchmark interest rates, the report states.
Such actions can represent difficult choices as they try to support a weak domestic economy. Likewise, extending support to companies beyond existing measures can increase credit risks and weaken the long-term health of financial institutions, delaying the recognition of losses, warns the IMF, noting that reversing measures could further tighten conditions. , weakening the recovery.
For central banks to contain inflationary pressures, clear and consistent communication of plans can improve public understanding of the need to pursue price stability, while countries with high levels of foreign currency indebtedness should seek to reduce these mismatches and hedge their exposures. says the IMF. Heavily indebted countries may also need to start fiscal adjustment earlier and faster, the Fund assesses. Ongoing support for businesses must be reviewed and plans to normalize that support carefully calibrated for perspective and to preserve stability, he says.
know more
+ SP: Man dies standing, leaning against car, and scene scares residents on the coast
+ One twin became vegan, the other ate meat. Check the result
+ Reincarnation in history: an age-old belief
+ Andressa Urach asks for money on the internet: ‘Help me pay my card bill’
+ Horoscope: check today’s forecast for your sign
+ CNH: see what you need to know for the application and renewal
+ See which were the most stolen cars in SP in 2021
+ Expedition identifies giant squid responsible for ship sinking in 2011
+ Everything you need to know before buying a crockpot
+ US Agency warns: never wash raw chicken meat
+ What is known about fluorone?
+ Trick to squeeze lemons becomes a craze on social media
+ IPVA 2022 SP: see how to consult and pay the tax
#Emerging #companies #prepare #Fed #monetary #policy #tightening #IMF