ABSTRACT

Emerging Market Economy Exchange Rates and Local Currency Bond Markets Amid the Covid-19 Pandemic   [open pdf - 0B]

From the Key Takeaways: "[1] Borrowing through domestic currency bonds has not insulated emerging market economies (EMEs) from the financial shock unleashed by Covid-19 [coronavirus disease 2019]; EME local currency bond spreads spiked amid sharp currency depreciations and capital outflows. [2] Portfolio investors face amplified losses as local currency spreads and exchange rates move in lockstep; their revised portfolio allocations in turn strengthen this correlation. [3] EMEs with monetary policy frameworks that are equipped to address the feedback loop between exchange rate depreciation and capital outflows stand a better chance of weathering the financial fallout from the Covid-19 pandemic. [4] To counter large stock adjustments in domestic bond markets, EME central banks may need to expand their toolkit to take on a 'dealer of last resort' role; a number of them are already moving in this direction."

Report Number:
BIS Bulletin No. 5; Bank for International Settlements No. 5
Author:
Publisher:
Date:
2020-04-07
Series:
Copyright:
2020 Bank for International Settlements
Retrieved From:
Bank for International Settlements: https://www.bis.org/
Media Type:
application/pdf
URL:
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