The International Monetary Fund on Monday said the policy response by emerging market economies to deal with a surge in capital inflows was insufficient and warned it could lead to a hard landing.

In an IMF note to the G20 published on Monday, the IMF said the response to the threat of overheating from a surge in capital inflows and rising inflation have been insufficient to address these rising pressures, portending risks of a hard landing.

The IMF repeated that the Chinese yuan was substantially undervalued, while the values of the euro and Japanese yen are broadly in line with fundamentals.

The Fund said the U.S. dollar remained on the strong side of fundamentals, adding that a further depreciation of the U.S. unit against undervalued currencies would help to cut the U.S. current account gap.

(Reporting by Lesley Wroughton)

International Monetary Fund