Emerging markets are at risk of revisiting last year's "Bernanke shock" should the Federal Reserve signal an end to near-zero interest rates earlier than investors anticipate, according to Takatoshi Kato, once a deputy managing director at the International Monetary Fund.
Former Fed Chairman Ben S. Bernanke triggered a rout across emerging-market assets when he raised in May last year the possibility that policymakers could reduce the pace of record bond buying. His successor, Janet Yellen, started tapering those asset purchases in 2014 and has been saying the benchmark interest rate will remain low for a "considerable time" after the quantitative easing ends. She is scheduled to deliver a speech this week at the annual gathering of central bankers in Jackson Hole, Wyoming.
"Because the scope of monetary stimulus globally has become so large, potential repercussions are all the more significant," Kato, who also worked as a top currency official at the Finance Ministry and is now the president of Japan's Center for International Finance, said in an interview in Tokyo last Wednesday. "It will require immense energy to unwind those capital outflows."
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