Moody's Warned Developing Countries About Monetary Expansion

International rating agency Moody's warned developing countries.

Moody's warned developing countries about monetary expansion. In a report announced by the international rating agency, it stated that the monetary expansion programs supported by the strong policy framework of the central banks of developing countries stabilized the local bond markets. Moody’s also noted that they improved inflation performance, while the timing of exit from the program could hinder the recovery and pose a risk. The Agency stated that the monetary expansion programs of central banks in developing countries are positive, but that the programs carry various risks due to different macroeconomic indicators. Moody's analyst Deborah Tan analyzed 11 developing countries, including Turkey, Croatia, Hungary, India, Indonesia, the Philippines, Poland, Colombia, and South Africa. Stating that strong frameworks and institutional arrangements support the monetary expansion programs of the Central Banks, Tan said, "While the monetary expansion implemented during the pandemic period in many countries helped balance capital outflows, it also reduced long-term bond returns.” On the other hand, Tan said that the differences in the institutional framework and macro foundations may also create different risks in the economies of the country in question, “For example, when the economic recovery begins, the prolongation of the program may interrupt the recovery. On the contrary, the end of the early monetary expansion also causes the financial conditions to shrink and puts the recovery at risk ”.