“Currencies should be allowed to depreciate”

Robin Harding
Financial Times
Oct. 4, 2013

The global economy is experiencing “transitions on an epic scale”, the International Monetary Fund managing director said on Thursday, warning that turbulence in emerging markets could knock 0.5 to 1 percentage point off their growth.

Christine Lagarde’s remarks show the damage done to emerging markets by a recent round of “taper talk”, over the possibility of the US Federal Reserve slowing the pace of its asset purchases and their vulnerability to future changes in the pattern of global capital flows.

“The immediate priority is to ride out the turbulence as smoothly as possible,” said Ms Lagarde. “Currencies should be allowed to depreciate. Liquidity provision can help deal with dysfunctional market behaviour. Looser monetary policy can also help.”

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