Mumbai: Christine Lagarde, the head of the International Monetary Fund, said in India that emerging markets must prepare for the impact of a rise in US interest rates which could surprise in both its timing and pace.
Christine Lagarde warned the so-called “taper tantrum” that slammed emerging markets in 2013 could be repeated. At that time, then-Fed Chair Ben Bernanke sent investors running when he talked about conditions that might cause the Fed to reduce its USD 85 billion-a-month in bond purchases aimed at stimulating the economy.
The managing director said, “The danger is that vulnerabilities that build up during a period of very accomodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility,” Lagarde said in prepared remarks. We already got a taste of it during the taper tantrum … I am afraid this may not be a one-off episode.”
Advanced economies could help reduce the risk of market volatility by communicating policy intentions clearly, Lagarde said. But she added that emerging markets that had tackled economic vulnerabilities had fared better when shockwaves hit in 2013.
