Commentary: Fed's rate rise adds uncertainty to world economy

The decision of the U.S. Federal Reserve to raise interest rates by a quarter-point to a range of 0.25 percent to 0.5 percent, the first increase in nearly a decade, has added uncertainty to the fragile world economy.

Indeed, the decision was made against the backdrop of a relatively robust U.S. economy recovering from the 2008 financial crisis at a steady pace, but the global economy as a whole has been instable and sluggish. The Fed's move will definitely further dent it and the emerging economies, in particular.

Many countries are concerned that the divergence in advanced economies' monetary policies will lead to unordered capital flows, high level of global debts, lack of confidence in markets and turmoils in financial and commodities markets, which will greatly impact emerging countries.

Besides, the global economy has been witnessing lower-than-expected growth, with bleak international trade and investment. Therefore, it may need a long and intricate process for the subhealthy world economy to recover.

In such circumstances, the U.S. move to raise its benchmark interest rates is risky.

Even if the Fed said it expected "only gradual increases," the negative spillover effects brought by the rate hikes will impact emerging economies that are experiencing poor performance of financial markets and weakening outlook for macro-economy.

Hiking interest rates too soon could cause capital flows to the United States from emerging markets, which are already vulnerable in many cases because of debt rollovers and shrinking foreign investment, as well as a potentially wide-ranging impact on global markets including currencies, equities, bonds and commodities.

Data from the Fed's two interest rate hikes in 1994 and 2004 showed that the net capital flows to the United States increased by 60 to 80 percent in the second year after the rates were raised.

An October report from the Washington-based Institute of International Finance said net capital flows to emerging markets in 2015 will be negative for the first time since 1988.

Among the 30 emerging economies it has surveyed, there will be net capital outflows of 540 billion U.S. dollars this year, compared to that of 32 billion dollars in 2014.

The net capital outflows would continue at a moderate rate of 306 billion dollars in 2016, on the expectation of the subdued growth prospects for the emerging economies, as well as the U.S. Fed's policy tightening, the report said.

Furthermore, in an era of globalization when economies are interdependent on each other and influence each other, weakening emerging markets will hinder the recovery of advanced economies, creating a vicious circle of downturn.

Therefore, it is advisable that the United States not adopt economic policies that benefit itself at others' cost.

For emerging economies, establishing a sound and stable financial system, speeding up the adjustment of industrial structure to explore new production and consumer markets while maintaining exportation, as well as enhancing international policy coordination and cooperation may help them counter the challenges. Endi