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IMF warns of hot money problem for emerging economies

06-22-2010 08:35 BJT

WASHINGTON, June 21 (Xinhua) -- The International Monetary Fund (IMF) has warned that the emerging economies, which have recovered faster than the advanced economies from the financial crisis, could face a new challenge of hot money problem.

"Executive Directors (in the IMF) saw the risk that fast recoveries may lead to rising capital inflows, closing output gaps, and rising inflation," said the IMF on Monday in a paper examining the performance of 57 emerging markets during the recent global financial crisis.

"Raising interest rates when policy rates in major advanced economies remain near historic lows could prompt excessive capital inflows, which could, in turn, fuel asset price bubbles," said the IMF.

"Thus monetary policy decisions may be constrained in some emerging market countries."

The Washington-based agency noted that countries have a range of policy options to cope with resurgent capital inflows depending on individual country circumstances: allowing the exchange rate to appreciate, building reserves, easing monetary policy, altering the macro policy mix, implementing macro-prudential measures.

"If deemed necessary under certain circumstances, temporary price-based capital controls" could be executed, said the IMF.

Meanwhile, the IMF said the recovery has been uneven across emerging market countries.

Those with better pre-crisis fundamentals and those that provided more stimuli during the crisis are recovering faster.

Moreover, recovery across emerging market countries has been helped by, and in turn contributed to, growth in advanced economy trading partners, said the IMF.

Editor:Xiong Qu |Source: Xinhua

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