Excerpts
"QUESTIONER: Emerging markets have been hit with rampant inflation, and some of that inflation seems to be bleeding into countries that previously didn’t suffer from that. How are those inflation pressures changing the IMF’s forecast for emerging markets, if at all? And secondly, are those inflation pressures based on structural problems, fundamentals, or are they based on the weakening currencies?
MR. RICE: You know it’s a situation we’re obviously monitoring closely, and we did issue a statement on this some days ago. I think what I would say in response to your question is that the turbulence that’s ongoing underscores the challenging situation that many emerging economies face as a result of tighter external financing conditions, including softer commodity prices in the context of tapering and initial steps towards normalizing U.S. monetary policy; and to differing degrees, slower growth and higher inflation. As you know, several emerging countries have responded forcefully in recent days while many countries also have solid fundamentals with high reserves, fiscal space, and inflation under control. The turbulence highlights the need for coherent macroeconomic and financial policies, good communication, and in some cases, the need for urgent policy action to improve fundamentals and policy credibility. The turbulence also underscores the need for vigilance in the central banks over liquidity conditions in international capital markets.
QUESTIONER: So you’re saying that more action in some countries is needed to tame inflation, urgent action?
MR. RICE: What I’d say is that the recent increase in market turbulence does not necessarily point to weak fundamentals in all countries affected, and a number of countries have taken measures to strengthen policies, reduce vulnerabilities, and shore up confidence. Other countries, though, need policy action to improve the fundamentals. And I think tangible signs of such efforts will help reduce current market volatility and vulnerabilities to future shocks. So I think it’s country by country.
QUESTIONER: Are the actions in the systemic countries right now -- Turkey, Brazil, South Africa -- enough? Are the actions that central banks are taking, sufficient enough in India, or do they need to be doing more? Are they behind the curve?
MR. RICE: So are you asking specifically now about India?
QUESTIONER: Yes, India, Turkey, South Africa, and Brazil.
MR. RICE: Okay, you’re asking about them all. This could take a while. We can go one by one if you like, but policy responses to market pressures have obviously varied across countries. Some countries have tightened monetary policy to rein in inflationary pressures, which was your question; others strengthened their fiscal policies. In many cases foreign exchange intervention focused on reducing volatility and important structural reforms are underway in a number of countries to raise their potential growth. So, again, I think the renewed turmoil that we’ve seen in late January highlights the need for strong policies, but those policies vary across different countries".
