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Central Banks, IMF Monitor Emerging Markets for Spillover Affects

Central Banks, IMF Monitor Emerging Markets for Spillover Affects

Bradley A. Kearns,

Talking Points:

  • Many policy figures have spoken to the concern of emerging markets over the months
  • IMF Director Largade is bullish on India and thinks China will miss hard landing
  • BoE, ECB, Fed all see potential domestic risks from developing nations

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A range of policy officials expressed concern over the health of the global outlook in various speeches through Thursday’s trading session. IMF Managing Director Christine Largarde expressed her worries over emerging markets (EM) during a speech at the University of Maryland. She noted that the slowdown and outflows coming from these economies are worrisome.

Largarde made references to particular countries. She said the IMF is bullish on India, saying that low energy prices is a benefit for the nation; and that the country should do well if the reforms from Prime Minister Modi are passed. Perhaps looking to assuage market fears, she expected China’s transition to a service oriented economy should occur smoothly and without a hard landing granted the use of correct policies to guide it. The IMF is also closely watching Nigeria - a country negatively affected by the oil shock - and will lend assistance if needed.

Central bank heads, such as Bank of England Governor Mark Carney and European Central Bank President Mario Draghi, had also discussed the potential downside risks of developing countries. After the BoE’s February rate decision, Carney said that China’s rebalancing of its economy poses dangers and that global financial conditions have deteriorated. Draghi believes that the risk sentiment towards EM may shift swiftly.

The Federal Reserve saw two of its members speak about the international landscape during the trading session. Dallas Fed President Robert Kaplan (non-voter in 2016) said the central bank is monitoring global conditions to see if they impact GDP, employment and inflation. He did note that foreign developments have subdued the appetite for policy normalization. His beliefs found some common ground with his Cleveland Fed President colleague Loretta Mester – a voting member. She said that the global outlook and market turmoil pose risks to the US, but she maintained further withdrawal of accommodation was still warranted.

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