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IMF says US shutdown 'benign' for markets so far

Last Updated: Wednesday, October 2, 2013 - 23:29

Washington: The International Monetary Fund said on Wednesday the US government shutdown caused by a budget impasse has been shrugged off by financial markets, but warned the uncertainty could tighten credit.

"The shutdown so far has been fairly benign. The effects on the markets have been relatively low," Laura Kodres, assistant director of the IMF's Monetary and Capital Markets Department.

Global stock markets' reaction to the partial US government shutdown yesterday was muted. Markets generally had priced in that outcome amid an entrenched battle between Republicans and Democrats in the US Congress over a budget for the 2014 fiscal year that began that Tuesday.

Kodres, however, cautioned that the uncertainty created by the political impasse could lead to tighter credit conditions in the world's largest economy.

"Any time we have an increase in uncertainty, that can have an effect on demand and potentially the supply of credit," she said during a news conference in Washington to unveil a new IMF report on global financial stability.

Households and businesses would likely rein in their use of credit because "it's very unpredictable to determine what will happen next," she said.

Banks could also become worried about the situation and cut back on credit, she added.

Most economists predicted the shutdown would shave a few tenths of a percentage point from fourth-quarter US economic growth, if it lasts only a week or two.

But they are increasingly concerned that the budget impasse could result in a US sovereign debt default if Congress fails to raise the nation's debt limit by mid-October.


First Published: Wednesday, October 2, 2013 - 23:25
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