January 31, 2014 / 3:40 PM / 4 years ago

UPDATE 1-IMF says emerging market turbulence raises concerns over liquidity

WASHINGTON, Jan 31 (Reuters) - The International Monetary Fund urged central banks on Friday to ensure that a financial market rout in the developing world does not lead to an international funding crunch.

An IMF spokesman said some emerging market countries need to take “urgent action” to improve their economies, which are under threat by a recent sell-off in markets from India and Turkey to Brazil.

“The turbulence also underscores the need for vigilance among central banks over liquidity conditions in international capital markets,” the spokesman said.

Many investors have blamed the selloff on the U.S. Federal Reserve, which recently started winding down a bond-buying stimulus program. A number of central bankers in poor countries agree, as vast sums of money printed by the Fed in recent years have pumped up asset prices in their countries.

“I have been saying that the U.S. should worry about the effects of its policies on the rest of the world,” Reserve Bank of India Governor Raghuram Rajan said on Friday, a day after slamming what he said was a breakdown in global monetary coordination.

But the IMF has said some developing countries need to look in the mirror when seeking causes for the volatility.

Jose Vinals, financial counselor and director of the IMF’s monetary and capital markets department, said on Tuesday that the Fed was acting prudently and that a big part of the selloff had to do with a subset of emerging market countries.

The IMF spokesman on Friday went into further detail, saying many poor countries have “solid fundamentals” with high currency reserves and room to engage in fiscal stimulus. Others, however, are showing a “need for urgent policy action to improve fundamentals and policy credibility.”

This week has seen some major falls in emerging currencies’ exchange rates, with central banks forced to raise interest rates or intervene in markets to limit the swings. Those currency losses and rate rises have put pressure on bond and stock holdings, forcing investors to exit.

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