Amid rising fears over the impact of the US Fed tapering programme on emerging economies’ growth, the International Monetary Fund (IMF) has asked the emerging market economies such as India to prepare for more volatile external conditions as they remain vulnerable to future increases in US interest rates. IMF's Monetary and Capital Markets Department director Jose Vinals has stated that recent market jitters witnessing in the emerging economies have showed that they have yet to complete their adjustment to higher risk premiums and more volatile external conditions.
By adding further, the IMF director has asserted that global investors are now observing countries on the basis of their financial vulnerabilities and macroeconomic imbalances. As the Federal Reserve in last month announced its stimulus programme by $10 billion to $75 billion from January, Indian key stock indices fell over 3 percent, showing country's macro-economic vulnerabilities. India’s economic growth slowed to decade low of 5 percent in 2012-13, while, country’s fiscal deficit reached around 94 percent of the budgeted target at 4.8 percent of GDP in the first eight months of FY14.
Suggesting steps to deal with tapering programme in a better way, J Vinals emphasized that policymakers will have to strengthen the fiscal and monetary policies, put in place appropriate policies to limit instability risks and address acute financial vulnerabilities by reining in excess corporate leverage and credit. IMF director further stressed that emerging markets will have to step up their financial rebalancing in order to bring greater financial stability for global financial system.