Market volatility tied to emerging markets, not Fed taper -I

Reuters - The volatility in world markets is being caused by problems in particular developing countries and not linked to the U.S. Federal Reserve's decision to reduce its monetary stimulus, the International Monetary Fund's top financial counselor said.

Large capital outflows from developing markets in the past few days have caused market jitters, with currencies in Turkey, Argentina and Russia hitting record lows. Many investors have blamed the moves on the withdrawal of U.S. monetary stimulus.

"We are seeing that the events in the past few days ... the major component has to do with problems in a subset of emerging market countries," Jose Vinals, financial counselor and director of the IMF's monetary and capital markets department, told reporters on Tuesday.

"This is something where the U.S. monetary policy tapering expectations have so far not played an important role," he said.

Vinals said that the U.S. central bank was acting prudently in starting to reduce its monthly bond buying program, consistent with improvements in U.S. economic data.

He said the chance of a smooth exit from the Fed's so-called "quantitative easing" had in fact increased since October because of the Fed's improved communication. The U.S. central bank has convinced markets that reducing monthly bond purchases was not equivalent to raising rates.

And for central banks in emerging markets, Vinals said it was important to maintain independence in order to keep inflation under control and retain credibility.

Vinals' comments came just before Turkey's central bank decided to sharply raise all of its main interest rates to stem a slide in the lira, despite the opposition of Turkish Prime Minister Tayyip Erdogan.