High U.S. interest rates pose a risk to emerging markets, warns IMF chief.

• Emerging markets typically face higher debt costs when U.S. interest rates rise, as their debts are often denominated in U.S. dollars.
• Capital outflows can be triggered by investors seeking higher returns in the U.S., resulting in tighter financial conditions.

The International Monetary Fund's managing director, Kristalina Georgieva, stated that while a monetary policy divergence between Europe and the U.S. may not have a significant impact, the consequences could be more severe in emerging markets.

Central banks in advanced economies have seen their benchmark rates increase in recent years as they tried to control inflation after the Covid-19 pandemic. However, as economies begin to slow down, these banks are now considering lowering rates. However, indications from the U.S. suggest that rate cuts may not occur for several months.

An unfavorable U.S. interest rate climate typically harms emerging markets by increasing the cost of their U.S.-denominated debts, prompting capital flight, and imposing stringent financial constraints.

Georgieva stated in Brussels on Monday that high interest rates in the United States have a more significant impact on countries with emerging market economies, making it a much more serious issue.

"In Japan, policymakers must closely monitor volatilities, while in Europe, this is not necessary."

In the euro zone, she stated that "we are not overly concerned about the exchange rate impact," explaining that the IMF's analysis indicated that the 50 basis point difference between the U.S. Federal Reserve and European Central bank rates would result in a minimal or 0.1 to 0.2% shift in the exchange rate.

She stated that this is not a significant problem in Europe.