The exchange rate outlook has also deteriorated recently. At the start of this year, markets were optimistic that US inflation was coming down, that the US dollar had peaked in late 2022, and that the US Federal Reserve (Fed) would be able to pause rate hikes soon and even think about cutting rates. Recent data have undermined this benign view.
The differences in preparedness of banks would hinder information sharing across sectors and across borders. Moreover, this may also create restriction in credit flow from banks of developed countries into the emerging economies, because these banks may be discouraged due to high capital allocation for such investment.