Globalisation and monetary operations in emerging economies

Globalisation has encouraged a convergence of monetary policy operating procedures in emerging market economies towards market-based instruments. The progressive easing of capital controls and the development of debt markets have undermined interest rate controls. The liberalisation of foreign borrowing has made quantitative loan limits on domestic banks less effective in restraining overall borrowing by firms. This trend towards market-based procedures has gone hand in hand with greater transparency and more explicit signalling of changes in the stance of monetary policy. This evolution parallels that in policy objectives towards inflation targeting. The influence of globalisation on operating procedures (controls versus market-based policies, quantities versus interest rates, short- versus medium-term rates) is discussed in Section 2. Section 3
considers how operating procedures may need to be modified under exceptional circumstances. Some ways for central banks to improve liquidity in the markets in which they operate are set out in Section 4. The final section examines how central banks can best extract information about market expectations, and the extent to which globalisation may be making this harder.