World Bank Warns on Fed Tightening Shock for Emerging Markets

Emerging markets risk an interest rate shock once the US Federal Reserve and other Western authorities start to withdraw global liquidity, the World Bank has warned.
by Ambrose Evans-Pritchard
Telegraph.co.uk
“There is the risk that the transition to higher rates occurs in an abrupt and disruptive fashion. In such a scenario, markets react pre-emptively, potentially trapping some participants in vulnerable positions that appeared manageable under low interest rates.”
The bank warned that banks “may be at particular risk” in countries that have let rip with the biggest asset bubbles. The institution cut its growth forecast for the global economy to 2.2pc this year, a world recession under the bank’s traditional definition, chiefly due to faltering momentum in China and the rest of Asia.
The World Bank said real interest rates were likely to jump by up to 270 points in the more heavily indebted BRICS states and other emerging markets as the West unwinds quantitative easing, and the tightening cycle starts in earnest.
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