Names will never hurt me –EM monetary credibility remains intact

Emerging market (EM) central banks’ credibility to restrain inflation over the medium-term horizon remains intact despite the tests it’s been subjected to in an age of supply shocks and massive income disappointments – and despite name-calling by some banks’ political masters.

What you will learn:

• We surveyed our economists’ views on 20 EM central banks; these reveal some examples of erosion in independence, accountability and transparency since the era of supply shocks began in 2019. But only in Argentina and Turkey do we see these as attacks of the metaphorical “sticks and stones” variety, which would represent a threat to the bones of price stability.
• In the space of just four years, EM macro volatility has risen from all-time lows to a 25-year high. In the context of an extremely testing macro backdrop, we ask where EM central banks’ credibility lies on the spectrum of robust to ravaged.
• Given the circumstances, it’s remarkable more quarrels haven’t broken out between central banks and their political masters – a sign of the support for low inflation in EMs. Plus, politicians and central bankers know how swift markets would be in punishing undisciplined EM policies.