A report by the Inter-American Development Bank suggests that fast-growing Latin American economies will need to implement macro-prudential policies to counter exchange rate appreciation. The use of these tools – which include capital controls, liquidity regulations and capital requirements and provisions – to combat the currency appreciation caused by high levels of capital inflows is contentious and was the topic of much debate at the IDB’s annual meeting in Calgary last month.
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“External funding at low cost under the present circumstances, and despite our tight prudential rules, creates incentives to increase risk taking and can end up in asset price distortions vis-à-vis the exchange rate” |
Alejandro Izquierdo, co-author of the IDB report, One region, two speeds – challenges of the new global economic order for Latin America and the Caribbean, told Euromoney that avoiding “excessive exchange rate appreciation… will require very good macro-economic management to...
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