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More pain for emerging economies when developed world raises rates: IMF

The IMF reduced its 2022 growth forecasts for the emerging economies in Asia to 5.9% from 6.3% previously in its latest outlook

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Emerging economies that face inflationary pressure as they come out of the coronavirus pandemic are likely to feel more pain when interest rates are raised in the developed world, International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath said on Tuesday.
"We are entering a period where global interest rates will start going up as major central banks around the world start raising interest rates," Gopinath told a news conference after the release of the IMF's latest World Economic Outlook. "That also then can create headwinds for the recovery for some emerging and developing economies."
The IMF reduced its 2022 growth forecasts for the emerging economies in Asia to 5.9% from 6.3% previously in its latest outlook, while reducing its growth expectations for the US economy to 4% from the previous 5.2%.
Gopinath said the diverging recovery version seen in the recovery prospects across countries has unfortunately persisted and is "still very much the case."
"We've seen advanced economies... back to pre-pandemic trend levels this year while for many emerging and developing economies... not all are the same. Countries that do have a large amount of external financing that rely on short-term foreign exchange borrowing and don't have enough reserves... would be much more subject to turbulence in markets," she said.
The US Federal Reserve is expected to announce at the conclusion of its January policy meeting on Wednesday that it will raise interest rates for the first time since the coronavirus outbreak in March of 2020.
Money market traders have forecast at least three US interest rate hikes this year, with a quarter percentage-point rise each time. The Federal Reserve left interest rates at near zero after the coronavirus outbreak, but is forced to raise them to stave off inflation, which has hit 40-year highs from trillions of dollars of pandemic relief spending.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Jan 26 2022 | 6:11 AM IST

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