Markets: A taper test for 'the rest'

The start of the US Federal Reserve’s stimulus policy had dramatic spill over effects for emerging markets, like India and Brazil, and the same is proving true of its withdrawal.

The volatility across emerging markets, including both currencies and equities, is a direct reflection of the distortions created by quantitative easing. Sudden and dramatic asset price fluctuations are making investors scrutinise the unintended side effects of the US central bank’s costly policy.

Unfortunately for emerging markets, with India and Brazil already taking the brunt of adverse consequences, it looks like capital flows will continue to be volatile, disrupting exchange rates and making inflation difficult to manage.

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