The head of the International Monetary Fund warned yesterday that emerging markets are set to face a renewed period of economic instability when US interest rates rise this year, forecasting a repeat of 2013’s damaging “taper tantrum” episode of capital flight and rapid currency depreciation.
The remarks by Christine Lagarde, given during a speech in India, came as Federal Reserve chairwoman Janet Yellen was expected to signal an end to the Fed’s policy of low rates guidance today, with global investors braced for an initial rise in US rates as early as June.
The IMF chief said she feared that negative “spillover” effects from these increases would lead to a re-run of the crisis that hit developing economies such as India and Turkey nearly two years ago, following hints from then Fed chairman Ben Bernanke of an early end to the institution’s bond purchasing programme known as quantitative easing.