HIGHLIGHTS OF THE WEEK
• Capital outflows out of emerging markets, and BIITS in particular, intensified this week, leading the central banks of India, Turkey, and South Africa to raise their policy interest rates.
• Turbulence among EMs did not undermine the Fed’s resolve to reduce asset purchases, with the FOMC trimming the pace of bond buying by $10bn to $65bn per month, without even a passing reference in the statement to the current volatility.
• As such, it would appear that the FOMC believes that the current bout of volatility is transitory and is unlikely to materially impact the global outlook. Moreover, the cut in bond buying is a vote of confidence in the strength of U.S. recovery, which should prop up global growth (and EM exports) this year.
• This belief was underscored by the advance estimate of fourth quarter GDP, which grew by a healthy 3.2% on consumer and export strength.
Editor: Chuhao(Joe) Zhou