Faster Fed tightening poses risks to EMs, says SAFE

China's foreign exchange regulator has warned of spillover risks to emerging markets and developing economies posed by the expected faster tightening of the US Federal Reserve, calling for better international monetary policy coordination.

Lu Lei, deputy head of the State Administration of Foreign Exchange, said US Fed Chair Jerome Powell's recent remarks about inflation signaled the Fed may speed up tightening its policy, which may put global liquidity conditions to the test.

Emerging markets and developing countries may therefore face strong attacks of the spillover effects, Lu said when addressing the annual meeting of the International Finance Forum via video.

It is important to strengthen international coordination of economic policies, improve the negotiation mechanism of monetary policy and create a fairer international environment for EMs and developing economies, Lu said, with particular attention paid to policy spillovers from major advanced economies.

Lu added China will explore more replicable mechanisms to liberalize cross-border investment and trade and expand financial sector opening-up in the Guangdong-Hong Kong-Macao Greater Bay Area and other regions that spearhead China's financial opening-up.

The country will also promote more alignments of domestic financial market rules with overseas practices and advance international cooperation in green finance, he said.