The impact of lower commodity prices, a stronger US dollar and moderating growth could pose fresh challenges to emerging market economies, the Financial Stability Board (FSB) has said.
The global body, that works towards ensuring financial stability, also cautioned about risks of diminished market liquidity and possible contagion across markets.
"The impact of lower commodity prices, a stronger US dollar and moderating economic growth may lead to further challenges for the financial resilience of some emerging market and developing economies, including the risk of capital flow volatility," FSB said after conclusion of its plenary meeting in Germany yesterday.
FSB represents entities from 24 nations and jurisdictions, including India, and international financial institutions, among others.
The observation comes at a time when there are apprehensions that possible hike in interest rate by the US Federal Reserve could result in volatility in emerging markets due to impact on capital inflows.
Earlier this month, the US Fed said it has removed a pledge to remain "patient" on raising rates, signalling a possible mid-year rate increase.
On Sunday, Reserve Bank of India (RBI) Governor Raghuram Rajan had said that primary factor deciding interest rates would be inflation.
He was responding to a query on whether the dovish statement by the US Fed would impact monetary policy decisions in India.
"While external environment is a constraint, a lot of what we need to do has to do with the internal environment. As the Fed start raising interest rates, my reading of the latest statement is they may take a little longer... But I do not think that will impinge on the process in India," Rajan had said.
Meanwhile, FSB in its statement said that recent market portfolio adjustments and asset re-pricing have occurred in response to the divergence in economic growth and policy expectations in the global economy.
"Market adjustments to date have occurred without significant financial stress. However, the risk of a sharp and disorderly reversal remains, given compressed credit and liquidity risk premia.
"As a result, market participants need to be mindful of risks of diminished market liquidity, asset price discontinuities, and contagion across markets," the statement noted.
