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THREAD on Hungarian 🇭🇺 monetary policy in #covid19 crisis management. Central bank's announcements today illustrate the dilemma of emerging markets as policymakers face a starker trade-off between providing cheap liquidity and leaning against FX-depreciation pressures 1/n
Just like elsewhere, governments and firms in emerging markets (EM) need cheap liquidity (in local currency) to finance the fight against the #covid19 crisis. This calls for cuts in interest rates by monetary policy. 2/n
At the same time, EMs also suffer a #suddenstop of capital inflows, as #FlightToSafety drives foreign investors away, putting downward pressure on the exchange rate. Even w/o FX-debt (currency mismatch), a sharp depreciation can hurt, being inflationary in an open economy. 3/n
