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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.