capital inflows to emerging markets - cemla · capital inflows to emerging markets. foreign...
TRANSCRIPT
Capital inflows to Emerging Markets
XV Meeting of Monetary Policy Managers CEMLA-September 2019Santo Domingo
1
Higher global uncertainty and lower GDP growth
2
World Trade Uncertainty index (weighted by GDP-PPP)
Source: IMF and own calculations .
Source: IMF
World GDP forecast (2019-2020)(percentage of change)
0
200
400
600
800
1000
1200
1400
1996
q119
97q2
1998
q319
99q4
2001
q120
02q2
2003
q320
04q4
2006
q120
07q2
2008
q320
09q4
2011
q120
12q2
2013
q320
14q4
2016
q120
17q2
2018
q3
2.00
2.50
3.00
3.50
4.00
4.50
2014 2015 2016 2017 2018 2019
Forecast (2019) Forecast (2020)
A more expansionary monetary policy in advanced economies
3
Source: Fuente: Bloomberg, Focus Economics y Reserva Federal.
Fed fund rate (Forecast –September 2018)
Source: Fuente: Bloomberg, Focus Economics y Reserva Federal.
Fed fund rate (Forecast –September 2019)
3.25
2.752.5 3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2014 2015 2016 2017 2018 2019
Observado FOMC (mediana)
Futuros Consensus Forecast (mediana)
2.0 2.0
1.75
1.0
2.5
2.0
1.75
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014 2015 2016 2017 2018 2019 2020
Observado FOMC (mediana)
Futuros Consensus Forecast (mediana)
Capital inflows to emerging marketsForeign Investment FlowsEmerging markets (Billions of U.S. dollars)
Higher uncertainty
Higher liquidity and lower interest rates in AE
Source: IIF.
Idiosyncratic factors in EM
-30
-15
0
15
30
45
60
75
90
ago 17 nov 17 feb 18 may 18 ago 18 nov 18 feb 19 may 19 ago 19
Asia emergente América Latina
5
Volatility of the international financial markets have affected some emerging economies. However, investors have recognized the soundness of Colombian macroeconomic policy framework and the orderly adjustment to shocks in previous years.
Nominal exchange rate index(Jan/2018=100)
Source: Bloomberg
CDS Emerging Markets
0
200
400
600
800
1000
1200
sep-17 mar-18 sep-18 mar-19 sep-1Colombia Brasil México Perú ChileRusia Turquía Argentina Sudáfrica
70
100
130
160
190
220
250
280
310
340
sep 17 mar 18 sep 18 mar 19 sep 19Brasil Chile México Colombia
Perú Turquía Sudáfrica Argentina
6
Capital inflows to Colombian economy have remained broadly stable. Foreign direct investment (FDI) has been the main source of external financing.
Source: Banco de la República
Composition of foreign capital inflows(Percentage of GDP)
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (I sem)
FDI Portfolio investment Other
Colombian Policy Framework
7
XV Meeting of Monetary Policy Managers CEMLA-September 2019Santo Domingo
Inflation targeting• Maintaining a low and stable inflation rate• Reducing the gap between GDP growth and
its “potential” level.Flexible exchange rate.
• Independence of monetary policy• Mitigates the response of economic activity
to external shocksExchange rate flexibility is the first line of defense. The successful of “floating” is due to:
• Limited currency mismatches• A credible monetary regime• External buffers (international reserves)• Sound and robust financial sector
8
Policy Framework affords to cushion external shocks
Nominal exchange rateCOP/USD
1500
2000
2500
3000
3500
4000
9
Colombian external funding has been mostly FDI. Portfolio investment has increased but mainly in public debt (LCU).Aggregate currency mismatches in Colombia are lower than the average of countries with negative NFA*.
Total net foreign assets*Percentage of GDP
Total net foreign assets excluding direct investment*Percentage of GDP
a/ 76 emerging and advanced economiesSource: IMF
b/ 76 emerging and advanced economies reporting NFA excluding DI (around 100% of GDP to -100% GDP)Source: IMF
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Colombia (NFA) All countries (Average of total NFA) a/
Countries with negative NFA (Average) b/
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Colombia (NFA excluding DI)
All countries (Average of NFA excluding DI) a/
Countries with negative NFA excluding DI (Average) b/
Expectations Implicit in Government Bonds (TES of 2 years) (Percentage)
Source Fuente: Banco de la República.
Well anchored Inflation Expectations in Colombia
10
3.17
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0ag
o-17
nov-
17
feb-
18
may
-18
ago-
18
nov-
18
feb-
19
may
-19
ago-
19
2 years
Fuentes:bancos centrales, The Economist Intelligence Unit (actualización a junio de 2018) y Banco de la República
International Net Reserves/(Current Account Deficit + Amortizations)
A sufficient level of external buffers provides another safeguard against external shocks. TheFlexible Credit Line (FCL) by the IMF has complemented the accumulation of internationalreserves.
0,0
0,5
1,0
1,5
2013 2014 2015 2016 2017(pr) 2018 (pr)
Discussion topics
12
XV Meeting of Monetary Policy Managers CEMLA-September 2019Santo Domingo
Source: New York Fed calculations based on the methodology outlined in Holston, Laubach, and Williams (2017)
What is the impact on MP in EM of lower natural interest rate in AE and lower premium risks in EM?
13
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
abr-
01
abr-
02
abr-
03
abr-
04
abr-
05
abr-
06
abr-
07
abr-
08
abr-
09
abr-
10
abr-
11
abr-
12
abr-
13
abr-
14
abr-
15
abr-
16
abr-
17
abr-
18
abr-
19US Euro Area
0
50
100
150
200
250
300
350
400
sep-17 mar-18 sep-18 mar-19 sep-19Colombia Brasil México Perú Chile
Source: Bloomberg
CDS Emerging MarketsNatural Rate of Interest(percentage)
Source: New York Fed calculations based on the methodology outlined in Holston, Laubach, and Williams (2017)
What is the impact of lower international interest rate on macroeconomic imbalances in EM?
14
0
5
10
15
20
25
30
35
40
45
50
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
External Debt Latin America and the Caribbean(percentage of GDP)
2.0 2.0
1.75
1.0
2.5
2.0
1.75
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014 2015 2016 2017 2018 2019 2020
Observado FOMC (mediana)
Futuros Consensus Forecast (mediana)
Fed fund rate (Forecast –September 2019)