EMEs should lower rates when faced with capital outflows – Fed research

Global losses

Emerging market economy (EME) central banks currently facing capital outflows should not hold back from cutting interest rates over concerns of exchange rate stability, research from the Federal Reserve suggests.

By keeping rates too high for too long, EMEs could cause a “more severe output contraction” and accelerate capital outflows, with little gains in terms of exchange rate stability, the researchers find.

In the first few weeks of the Covid-19 crisis, emerging market economies’ corporate

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