Over the past couple of decades, central banks in emerging markets have made substantial progress in developing the credibility to conduct countercyclical monetary policy.
During the COVID crisis, many of these central banks not only cut interest rates sharply, but also deployed a range of tools to help restore market functioning, including asset purchases. And, while some of these central banks now consider moves to tighter monetary policy stances, the likely use of these policy tools again in the future merits a closer look.
While asset purchases can help central banks achieve their mandated objectives, they also pose significant risks.
In previous years, it would have been mainly advanced economy central banks making purchases of government debt. However, for the first time on a significant scale, central banks in countries such as South Africa, Poland, and Thailand broke new ground…
