Template-Type: ReDIF-Paper 1.0
Author-Name: Boris Hofmann
Author-X-Name-First: Boris
Author-X-Name-Last: Hofmann
Author-Name: Ilhyock Shim
Author-X-Name-First: Ilhyock
Author-X-Name-Last: Shim
Author-Name: Hyun Song Shin
Author-X-Name-First: Hyun Song
Author-X-Name-Last: Shin
Title: Emerging market economy exchange rates and local currency bond markets amid the Covid-19 pandemic
Abstract: Borrowing through domestic currency bonds has not insulated emerging market economies (EMEs) from the financial shock unleashed by Covid-19; EME local currency bond spreads spiked amid sharp currency depreciations and capital outflows. Portfolio investors face amplified losses as local currency spreads and exchange rates move in lockstep; their revised portfolio allocations in turn strengthen this correlation. 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. 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.
Length: 9 pages
Creation-Date: 2020-04-07
File-URL: https://www.bis.org/publ/bisbull05.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/bisbull05.htm
File-Format: text/html
Number: 5
Handle: RePEc:bis:bisblt:5