The International Monetary Fund,IMF, has warned that a further drop in commodity prices including oil, would lead to more depreciation in the currency and trigger inflation in commodity exporting countries.
The IMF’s new Chief Economist, Maury Obstfeld, stated this in interview published on the Fund’s website.
Speaking on his expectations of 2016, Obstfeld predicted that there would be a lot of challenges this year and that emerging markets will be at the centre stage.
He said: “Capital inflows are down, some reserves have been spent, sovereign spreads have widened, currencies have weakened, and growth is slowing sharply in some countries. Currency depreciation has proved so far to be an extremely useful buffer for a range of economic shocks.
Sharp further falls in commodity prices, including energy, however, would lead to even more problems for exporters, including sharper currency depreciations that potentially trigger still-hidden balance sheet vulnerabilities or spark inflation.”
“Global financial conditions are tightening, and emerging and developing markets are especially sensitive to the effects, given other current woes.” he added.
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