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.
Author
Ross J Burland
FXStreet
Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.
