IMF says Korea well-placed to ride out easingCanada, Korea and Australia are among the countries best placed to weather any global market volatility from the withdrawal of U.S. monetary stimulus, according to the International Monetary Fund.
In a report released Monday, IMF staff gauged the likelihood of capital outflows in 13 major developed and emerging economies when the Federal Reserve starts paring its $85 billion in monthly asset purchases. The study also estimated the nations’ ability to withstand such volatility, looking at criteria such as currency reserves and reliance on foreign funding.
“Some capital flow reversal and higher borrowing costs are to be expected, but further volatility could emerge, even if exit is well managed,” the staff wrote in the report. “Affected countries should proactively take steps to enhance fundamentals, as this will provide more room for policy maneuver later.”
Bond prices slumped internationally and emerging-market stocks plunged after May 22, when Fed Chairman Ben S. Bernanke said for the first time the Fed could withdraw stimulus “in the next few meetings” if the economy showed sustainable improvement. Those markets rebounded after the Fed decided last month to continue its program.
The Institute of International Finance, a Washington-based industry group that represents global financial institutions, on Monday cut its 2013 forecasts for capital inflows by $83 billion compared with a June prediction to $1.06 trillion.
“Rising global interest rates in anticipation of the Fed exit have compounded domestic weaknesses” in emerging markets, according to the institute.
The IMF report and its attached study predate the Fed’s Sept. 18 decision to refrain from tapering bond buying. Economists of the Washington-based fund stopped short of spelling out which nations, among the economies that don’t use unconventional monetary policies, face the greatest risks from the Fed’s exit.
The report, called “Global Impact and Challenges of Unconventional Monetary Policies,” explores the dangers attached to the withdrawal of quantitative easing and what central banks from the U.K. to Japan can do to mitigate them.
“The path for future interest rates is clouded by uncertainty as to central banks’ policy plans,” IMF economists wrote. Another possible source of volatility in long-term rates is the “somewhat greater challenges in controlling market interest rates” central banks face because of a large surplus of liquidity in the system.
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