Daily Management Review

IMF warns developing countries of currency devaluations risk


Developing countries such as Russia, Brazil and South Africa should prepare for a rise in US interest rates that would lead to economic turbulence, capital outflows and depreciation of their national currencies, the IMF said. Rising wages, supply disruptions and inflation make a tightening of Fed policy more likely, the organisation said.

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Developing countries such as Russia, Brazil and South Africa should prepare for an increase in interest rates in the U.S., which will have adverse effects on their economies. This is stated in a statement of the International Monetary Fund (IMF), published on its website. 

IMF experts said that an accelerated tightening of the US monetary policy "could shake financial markets and worsen financial conditions around the world". "Such developments could be accompanied by a slowdown in demand and trade in the United States and could lead to capital outflows and currency depreciation in emerging markets," the report said.

Meanwhile, the likelihood that the US Federal Reserve would hike rates would increase with rising inflation caused by rising wages and supply disruptions, the IMF said. If US inflation and rate hikes remain within expectations, however, the impact on emerging economies will be more favourable, the organisation said.

Talking about possible ways to counteract economic instability, they recommended that countries with higher inflationary pressures and weak institutions "act quickly, let the currency depreciate and raise benchmark interest rates".

source: imf.org