Sub-Prime Crisis Likely To Affect Emerging Economies

Mumbai: The US sub-prime mortgage turmoil could weigh heavily on the future constancy of financial markets and is also likely to have a wider affect on global growth, with particular worries centred on the prospects for emerging market economies. If credit conditions tighten, emerging market economies could become particularly vulnerable to reversals of capital flows with serious implications for their future prospects. The slowing down of the US economy, in combination with capital reversals, could also have adverse consequences for growth on a prolonged basis by affecting exports of manufactures and services, depending on the extent of linkage with the US economy. In general, recent financial market developments are indicative of evolving uncertainties for such economies with significant challenges for the conduct of monetary policy and for ensuring financial stability in their economies. The recent gains in bringing down inflation and in stabilising inflation expectations should support the current expansionary phase of growth cycle.