The International Monetary Fund has advised emerging economies including Nigeria to allow their currencies to depreciate in response to tighter funding conditions and an imminent policy tightening by the Federal Reserve Bank of the United States.
The Washington-based lender also counselled the Central Bank of Nigeria and the apex banks of emerging economies to raise their benchmark interest rate in preparation for the Fed policy tightening.
The IMF disclosed this in a blogpost titled, ‘Emerging Economies Must Prepare for Fed Policy Tightening,’ on Monday. According to the fund, while changes in the global economic outlook appear positive, especially in the United States, these changes are uncertain for emerging markets.
It noted that emerging markets with high public and private debts, foreign exchange exposures, and lower current-account balances had been seeing larger movements of their currencies relative to the US dollar in recent months.
As a result, the IMF said the combination of slower growth and elevated vulnerabilities could create adverse feedback loops for the emerging economies. It said, “Some emerging markets have already started to adjust monetary policy and are preparing to scale back fiscal support to address rising debt and inflation.