WASHINGTON (Reuters) - Emerging markets are likely to see considerably more impact from higher U.S. interest rates when the Federal Reserve pulls back from its massive monetary stimulus, World Bank President Jim Yong Kim said on Tuesday.
Fed chief Ben Bernanke shocked emerging markets in May when he raised the possibility that the U.S. central bank could soon embark on a draw-down in its bond-buying program, known as quantitative easing.
“We think we’ve seen about a third of the overall increase in interest rates responding to that first announcement,” Kim said in a briefing with reporters.
The Fed surprised financial markets in September by opting not to reduce its $85 billion per month bond-buying pace. But economists think signs of vigor in the U.S. job market will lead the central bank to make a move by early next year.
Thailand, Malaysia and Indonesia were particularly hard hit by capital outflows after Bernanke’s comments, as investors bet on higher rates in the United States. Kim said the fallout was partly driven by domestic weaknesses.
Higher U.S. rates would make it harder for emerging markets to get access to capital for investments, including addressing about a $4.3 trillion infrastructure deficit in their economies, he said.
“As U.S. interest rates go up, what we’re going to see is it will be even more difficult to get access to the kinds of capital for infrastructure investments that developing economies need,” Kim said.
The World Bank has made funding “transformative” infrastructure projects a key part of its new strategy since Kim came to the helm of the poverty-fighting institution last year. The bank plans to bring together its investment guarantees, the private sector and governments to build more massive infrastructure projects, such as power plants in Africa.
Reporting by Anna Yukhananov; Editing by Dan Grebler