Home EMs Face Challenges from Unconventional Monetary Policy – Fitch
FXStreet News

EMs Face Challenges from Unconventional Monetary Policy – Fitch

In a new report, Fitch Ratings has noted that central bank bond-buying has helped to smooth volatility in emerging markets (EMs), but stated that risks to macroeconomic stability and policy credibility are greater than in developed markets.

Lead paragraphs

EMs with an independent central bank, a successful inflation targeting record and no debt sustainability issues are better placed to implement unconventional monetary policies.

EMs were especially impacted by the onset of the coronavirus and commodity shocks, seeing large currency depreciations and volatility, higher local-currency bond yields and large capital outflows from international investors. Several responded with unconventional monetary policies, including local bond buying programmes, although their main purpose was to help smooth volatility and provide liquidity to the domestic market.

Only a handful of EMs have begun relatively large-scale QE to try to reduce long-term domestic interest rates. These include Croatia, where the central bank held 17% of domestic market debt at end-May, and Poland (13%), although purchases are much lower relative to GDP than in DMs. Both the Polish and Croatian central banks have reached their stated lower bound of policy rates.

  • USD/MXN Price Analysis: Bullish momentum eases after finding resistance below 23.00

 

FX Street

FX Street

FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market. It was launched in 2000 and the portal has always been proud of their unyielding commitment to provide objective and unbiased information, to enable their users to take better and more confident decisions.