Emerging markets and balance-of-payment risk
SEVERAL emerging market (EM) central banks have hiked interest rates sooner than expected. The culprit: looming balance of payment (BoP) risks, which have crept in on the back of higher US bond yields, US dollar appreciation and higher oil prices. Recently, there has been some respite as US bond yields and oil prices have declined, but this is not the time for EM policy-makers to drop their guard.
To counter the higher BoP risk premium perceived by investors, the central banks of Turkey and Indonesia have hiked interest rates, while Brazil refrained from a widely expected rate cut. In Indonesia and Brazil, the decisions wer…
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