Sunday , November 29 2020
Home / Bank of International Settlement / Monetary policy response in emerging market economies: why was it different this time?

Monetary policy response in emerging market economies: why was it different this time?

Summary:
BIS Bulletin  |  No 32  |  12 November 2020 by  Ana Aguilar and Carlos Cantú PDF full text (3,122kb)  |  9 pages Key takeaways During the Covid-19-induced financial stress in March 2020, central banks in emerging market economies (EMEs) departed from their monetary policy playbook by cutting rates even in the face of sharp currency depreciations and massive capital outflows. Two factors were at play. First, the cyclical position of EMEs gave more room for easing of monetary policy, while structural changes improved the anchoring of inflation expectations and kept a lid on exchange rate pass-through.

Topics:
International Settlement considers the following as important:

This could be interesting, too:

International Settlement writes Capital flows, exchange rates and policy frameworks in emerging Asia

Amol Agrawal writes Fischer Black Prize 2021 awarded to Matteo Maggiori

Bank of Japan writes Monthly Schedule of Outright Purchases of Japanese Government Bonds (Competitive Auction Method) (December 2020)

Bank of Japan writes Schedules of Outright Purchases of CP and Corporate Bonds (December 2020-January 2021)

BIS Bulletin  |  No 32  | 
12 November 2020
PDF full text
 (3,122kb)
 |  9 pages

Key takeaways

  • During the Covid-19-induced financial stress in March 2020, central banks in emerging market economies (EMEs) departed from their monetary policy playbook by cutting rates even in the face of sharp currency depreciations and massive capital outflows.
  • Two factors were at play. First, the cyclical position of EMEs gave more room for easing of monetary policy, while structural changes improved the anchoring of inflation expectations and kept a lid on exchange rate pass-through. Second, the swift monetary policy easing by the Federal Reserve and other advanced economy central banks calmed global financial conditions. These policies capped the appreciation pressures on the US dollar, an EME risk factor, and gave EMEs greater room to cut interest rates.
  • Monetary easing and asset purchases helped cushion the impact of portfolio outflows on local currency sovereign bond markets. Synchronised monetary and fiscal policies supported one another.

Online appendix

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

Leave a Reply

Your email address will not be published. Required fields are marked *