JAKARTA (TheInsiderStories) - Moody’s Investors Service says in a new report that while quantitative easing (QE) programs launched by central banks in emerging markets are largely positive, the risks involved vary widely because of differing macroeconomic fundamentals.
In the report, Moody’s analyzed 11 emerging markets where central banks have embarked on the largest QE programs — Chile (A1 negative), Colombia (Baa2 negative), Croatia (Ba1 stable), Ghana (B3 negative), Hungary (Baa3 positive), India (Baa3 negative), Indonesia (Baa2 stable), the Philippines (Baa2 stable), Poland (A2 stable), South Africa (Ba2 negative) and Turkey (B2 negative).
“Improved policy frameworks and institutional arrangements have supported the success of central banks’ QE programs. In most markets, QE launched at the height of the pandemic has helped offset the effect of capital outflows and brought down long-term bond yields as governments’ financing needs increased,” says Deborah Tan, an analyst from Moody’s in her latest report.
However, differences in institutional frameworks and macro fundamentals will lead to varying risks across economies. For instance, extending QE when an economic recovery is already underway would make it more difficult to roll it back, but prematurely withdrawing QE could tighten financial conditions and jeopardize a nascent recovery.
If central banks struggle to unwind QE, inflation could accelerate and debt-servicing costs, which vary across the 11 economies, could increase. Credible exit plans will hinge on institutional frameworks’ strength, with emerging markets with stronger frameworks facing less risk of maintaining and extending QE beyond what economic conditions warrant.
Recently, Group of 20 (G20) noted global economic activity is expected to contract sharply in 2020 due to the impact of the COVID-19 pandemic and the associated disruptions in supply and demand. While, the outlook remains highly uncertain and is subject to elevated downside risks, global economic activity is expected to recover going forward as our economies gradually reopen and the impacts of our significant policy actions materialize.
It said, the policymakers will taking immediate and exceptional measures to address the pandemic and its intertwined health, social and economic impacts, including through the implementation of unprecedented fiscal, monetary and financial stability actions while ensuring that the International Financial Institutions and relevant international organizations can provide critical support to emerging, developing and low-income countries.
In addition, said G20, fiscal and monetary policies will continue operating in a complementary way for as long as required. Monetary policy continues to support economic activity and ensure price stability, consistent with central banks’ mandates.
“We will continue to facilitate international trade, investment and to build resilience of supply chains to support growth, productivity, innovation, job creation and development. We will continue to take joint action to strengthen international cooperation and frameworks,” said the communique.
Written by Editorial Staff, Email: theinsiderstories@gmail.com
