The International Monetary Fund (IMF) has warned developing economies to be prepared for an interest rate hike by the US central bank.
In a statement issued on Monday, the IMF said it expects strong US economic growth to continue with inflation likely to moderate by the end of the year.
According to the IMF, the tightening of US monetary policy is likely to have an impact on markets in developing economies, with foreign demand expected to offset the impact of rising financing costs.
However, broad -based growth in U.S. wages or continued supply disruptions could drive prices higher and cause inflation to rise faster, thus triggering an earlier -than -expected rise in interest rates.
Faster rate hikes could affect financial markets globally. The effect can be seen from the slowdown in US demand and trade leading to capital outflows as well as currency depreciation in emerging markets.
Accordingly, the IMF urged central banks to present their plans for policy tightening clearly and consistently.
The government may also announce plans to increase fiscal resources by gradually increasing tax revenues, implementing pensions and renewing subsidies, or other appropriate measures.
