Thread by @HyunSongShin

The pandemic has been a perfect storm for emerging markets; the latest #BIS_Bulletin looks at how EME central banks intervened in their bond markets to quell financial turmoil
bis.org/publ/bisbull20…

Bond purchases by EME central banks complemented cuts in policy rates to ease financial conditions

Bond purchases were were also notable in being unsterilised; EME central banks bought bonds outright financed with reserves of the banking sector

Interventions were highly effective in quelling turmoil; nor was there additional currency depreciation

These events are highly significant; emerging market central banks have emerged with greater stature. Two features highlight their "grown up" image...

First, they cut rates to calm their markets, rather than jacking up rates to prevent capital flight. This is a big change from their previous playbook, where tighter monetary policy was the received response, lest currencies collapse

Second, the currency markets did not react adversely; nor did fears of monetary financing and fiscal dominance rear their heads (but the size of interventions were pretty small)

All these findings are very significant in guiding policy, as most emerging market sovereign debt is in domestic currency

See the BIS Quarterly Review published today:
bis.org/publ/qtrpdf/r_…

Bottom line: emerging markets are not just about currency mismatch

The external/internal dimension needs to be taken seriously, separately from the foreign currency/domestic currency dimension