By Andrea Shalal

WASHINGTON, (Reuters) – Emerging countries must be prepared for U.S. rate increases, warned the International Monetary Fund. The International Monetary Fund stated that faster Federal Reserve moves than anticipated could shake financial markets, trigger capital outflows abroad, and rattle currency exchanges.

The IMF published a blog Monday stating that it expects strong U.S. growth and inflation to slow down later this year. New global economic projections are due out by the international lender on January 25.

The report stated that a gradually increasing, well-telegraphed U.S. monetary policy tightening would not likely have any impact on emerging markets and foreign demand will offset the rising costs of financing.

Wide-based U.S. wage inflation could cause a surge in prices and lead to higher inflation. The U.S. central banking system may also trigger faster rate increases if supply problems persist.

“Emerging countries should be ready for possible bouts of economic volatility,” said the IMF, noting the dangers posed both by the faster-than-expected Fed Rate hikes and the resurgent Pandemic.

James Bullard of St. Louis Fed said that the Fed may raise interest rates by March. That’s months before was expected and it is in a good position to make even stronger anti-inflationary steps if needed.

A rapid Fed rate increase could shake financial markets, and global financial conditions will tighten. Senior IMF officials stated that these developments may cause a slower pace in U.S. trade and demand, which could lead to currency depreciation and capital outflows in emerging markets.”

According to it, emerging markets that have high levels of public and private debt and foreign currency exposures and current balances lower than the U.S. dollar had seen greater movements in their currencies.

The fund stated that emerging markets should take swift action to lower inflation and strengthen their institutions. Countries with high debts in foreign currencies must look for ways to protect their assets.

The government could also make plans to raise fiscal resources, such as increasing taxes, improving pensions and other reforms.