Inflows may exert pressure on exchange rates: IMF official
Amidst the stock market crashing, trigged by potential curbs on foreign money coming to India, a top IMF official said the capital inflows entering the emerging markets, mainly through FDI route, may exert pressure on exchange rates.
MUMBAI: Amidst the stock market crashing, trigged by potential curbs on foreign money coming to India, a top IMF official said the capital inflows entering the emerging markets, mainly through FDI route, may exert pressure on exchange rates.
"With the rising cost of sterilisation and increasing inflows, resistance and sterilisation tools don't seem to contain the currency appreciation in these markets," IMF's senior resident representative Joshua Felman said at a round table discussion organised by the Bombay Chamber of Commerce and Industry here.
However, the appreciation can be contained to an extent with better fiscal discipline, he said.
With the unprecedented surge in inflows in emerging markets, reserves have gone up in emerging markets while the fiscal expenditure also tends to soar as long as the inflows remain strong, he added.
"This boom can be problematic in emerging markets with the tools of sterilisation and resistance not appearing sufficient for them to tackle the inflows," he said.
Taking cues from the inflows, growth rates tend to rise in most of the markets while a slowdown is expected after that, he added.
The bourses today tanked by a record 1,744 points on fears of withdrawal by foreign investors but staged an incredible recovery to cut losses to just over 300 points after the government and market regulator swung into a damage-control mission.
"With the rising cost of sterilisation and increasing inflows, resistance and sterilisation tools don't seem to contain the currency appreciation in these markets," IMF's senior resident representative Joshua Felman said at a round table discussion organised by the Bombay Chamber of Commerce and Industry here.
However, the appreciation can be contained to an extent with better fiscal discipline, he said.
With the unprecedented surge in inflows in emerging markets, reserves have gone up in emerging markets while the fiscal expenditure also tends to soar as long as the inflows remain strong, he added.
"This boom can be problematic in emerging markets with the tools of sterilisation and resistance not appearing sufficient for them to tackle the inflows," he said.
Taking cues from the inflows, growth rates tend to rise in most of the markets while a slowdown is expected after that, he added.
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Felman also observed that as time goes on, inflow pressures tend to rise in emerging markets posing more challenges to the respective regulators.The bourses today tanked by a record 1,744 points on fears of withdrawal by foreign investors but staged an incredible recovery to cut losses to just over 300 points after the government and market regulator swung into a damage-control mission.
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