WASHINGTON, April 9 (Xinhua) -- A badly-timed and bumpy exit from extraordinary monetary policy in the United States could undermine global financial stability and spill over to emerging markets, the International Monetary Fund (IMF) warned Wednesday.
"Undue delay could lead to a further build-up of financial stability risks, and too rapid an exit could jeopardize the economic recovery and exacerbate still-elevated debt burdens in some segments of the economy," the Washington-based IMF said in its latest edition of Global Financial Stability Report, noting that "the timing and management of exit is critical."
The global lender said its baseline scenario, the most likely outcome, is a smooth exit from extraordinary monetary policy in the United States, but warned that "a bumpy exit" is possible.
"This adverse scenario could be produced by growing concerns in the United States about financial stability risks, or higher-than-expected inflation," Jose Vinals, director of the IMF's monetary and capital markets department, said at a press conference.
"The result could be a faster rise in policy rates and term premiums, widening credit spreads, and a rise in financial volatility that could spill over to global markets," he added.
In the most serious adverse scenario with rising interest rates, weakening earnings and depreciating exchange rates, "emerging market corporates owing almost 35 percent of outstanding debt could find it hard to service their obligations," Vinals explained.
In order to engineer a successful shift from "liquidity-driven" to "growth-driven" markets, Vinals urged the United States to get the "timing, execution and communication" of the monetary policy normalization right.
Emerging markets also need to continue to prepare for tightening in global financial conditions by "enhancing resilience through strong macro and prudential policies, building policy buffers, and managing corporate leverage," Vinals said.
WASHINGTON, April 3 (Xinhua)-- Emerging economies are being challenged by an external environment that is less supportive compared with pre-crisis period and internal factors are also making growth slower in many countries, said the International Monetary Fund (IMF) in a new research on Thursday. Full story