In America and Europe, central banks turned only recently from encouraging economic recovery to battling stubborn inflation. In some emerging markets this shift began much earlier
Save time by listening to our audio articles as you multitaskThese kinds of comments look prudent and prescient in hindsight. Indeed, with some notable exceptions, central banks in emerging markets have won increased respect in recent years. Their monetary-policy frameworks have improved, according to a new index developed by the. Their frameworks are more coherent , transparent and consistent .
When the Fed tightens monetary policy, trouble has often followed for emerging markets. In 2013, for example, Ben Bernanke’s talk about reducing the pace of the Fed’s bond-buying sparked the “taper tantrum”, a big sell-off in Brazil, India, Indonesia, South Africa and Turkey. Things are different in the rich world. When the Fed tightens, central banks in Britain, the euro area and Japan do not feel obliged to raise interest rates. Their currencies may fall.
Some central banks have been able to “look through” the rise in food and fuel prices. One example is Thailand’s central bank, which has done nothing even as inflation has surged. It insists that “medium-term inflation expectations remain anchored,” and it wants to make sure the economic recovery gains traction. But other emerging markets, including Mexico and Brazil, felt compelled to raise interest rates forcefully long before their economies fully recovered.