Agustín Carstens Urges Emerging Markets Vigilance in Finishing Inflation Fight

Bloomberg — Emerging markets have anticipated the cycle of high interest rates well and learned lessons from previous tightening episodes, according to the Bank for International Settlements.

“Inflation has already shown some important progress,” General Manager Agustin Carstens said in a Bloomberg Television interview. But, he said, central banks in emerging economies “can’t be complacent” — echoing the assessment of other policymakers about the urgency of not letting up too early in the so-called last mile of the inflation race.

Carstens, a former Banco de Mexico governor before joining BIS in 2017, struck a note of cautious optimism on emerging markets. While softer growth in China will create “additional headwinds” for countries that might have expected an upswing after Beijing eased its Covid restrictions, Carstens said there were bright spots in EM foreign-exchange markets that traditionally were battered in a crisis.

“Most of the emerging markets have been more resilient than many advanced economy currencies,” Carstens said. Brazil’s real and Mexico’s peso have outperformed in appreciation against the dollar, he said, “something that 20, 30 years ago you would say would have been unimaginable.”

Some key takeaways from Carstens:

• China’s yuan has seen some weakness but has been “relatively stable.”
• Central banks in emerging markets have been managing political pressure well, and there has been some coordination between fiscal and monetary policymakers.
• Banks have remained healthy across the vast majority of emerging markets.

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