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1/n
Central banks generally don't have a problem with stronger FX (Fed aside); stances depend on four things imv:
1) cycle point,
2) monetary conditions
2) growth composition
3) FX reserves vs need (importers)
For EM funding needs, stronger FX is definitely a help
Central banks generally don't have a problem with stronger FX (Fed aside); stances depend on four things imv:
1) cycle point,
2) monetary conditions
2) growth composition
3) FX reserves vs need (importers)
For EM funding needs, stronger FX is definitely a help
2/n
Some central banks overdo sensitivity to stronger FX than is appropriate (imho) for the monetary conditions composition (RBA, etc). This is assuming cycle point is supportive (it is) and the FX need isn't an issue (importers)
Some central banks overdo sensitivity to stronger FX than is appropriate (imho) for the monetary conditions composition (RBA, etc). This is assuming cycle point is supportive (it is) and the FX need isn't an issue (importers)
3/n
Some central banks are victims of macro success, either locally or regionally, leading to large/persistent portfolio inflows. In such a situation, we normally find capital controls (Asia) and funding needs are - understandably - not the worry. Reserves are huge; FX contained
Some central banks are victims of macro success, either locally or regionally, leading to large/persistent portfolio inflows. In such a situation, we normally find capital controls (Asia) and funding needs are - understandably - not the worry. Reserves are huge; FX contained
4/n
Some central banks with notable FX weights in monetary conditions have a history of working within this framework, so view FX very much as a policy tool, albeit determined by the market. Czech is a good example; had a cap on CZK gains when deflation was a worry, otherwise ok
Some central banks with notable FX weights in monetary conditions have a history of working within this framework, so view FX very much as a policy tool, albeit determined by the market. Czech is a good example; had a cap on CZK gains when deflation was a worry, otherwise ok
5/n - will add more permutations as they spring to mind.
6/n
Some CBs have a dollarisation problem, which means either: 1)
FX encourages cheaper USD accumulation, & / or 2), local economy is pegged to USD (house prices, etc), effectively blunting local monetary policy. Broadly stable FX desired to reduce inflation volatility
Some CBs have a dollarisation problem, which means either: 1)
FX encourages cheaper USD accumulation, & / or 2), local economy is pegged to USD (house prices, etc), effectively blunting local monetary policy. Broadly stable FX desired to reduce inflation volatility
