IMF Chief Dismisses Concern Over Euro-US Rate Gap Impact on Emerging Markets

Kristalina Georgieva, head of the International Monetary Fund (IMF), downplayed any potential negative impact from divergence in monetary policies between Europe and the United States. While central banks across advanced economies raised benchmark rates after Covid-19, many now plan to reduce them as economic activity slows. However, signals suggest that cuts may still be some months away for the US, traditionally a headache for emerging markets whose debt is usually denominated in dollars and thus becomes more expensive during high interest rate environments. Georgieva explained that this issue was much graver for countries where such impacts were felt strongly – many emerging market economies. She also highlighted Japan as an example of this problem. However, she noted that the European Central Bank’s (ECB) 50 basis points difference from US Federal Reserve rates would lead to a minimal or negligible shift in exchange rate values by no more than 0.2%. Accordingly, Georgieva stated that Europe was not overly concerned about this issue as it posed little threat there.