Factbox: Emerging markets wary Fed policy may amplify inflows

(BestGrowthStock) – The Federal Reserve said it will buy $600 billion more in government bonds by the middle of next year, but some countries are worried U.S. monetary policy could fuel asset bubbles in their economies.

Nations across Latin America, Asia and Eastern Europe are wary of the United States’ extremely loose monetary policy, which has devalued the dollar and led foreign capital to flood into emerging markets in search of better returns.

Some emerging economies are regularly intervening in markets to curb gains in their currencies, fearing it will make exports less competitive and their stunt economic growth. A number of others have announced measures aimed at controlling inflows and containing rapid rises in property prices.

The following are reactions by emerging market policymakers to the Fed’s policy announcement:

HONG KONG MONETARY AUTHORITY CHAIRMAN NORMAN CHAN

“The launch of QE2 will definitely add pressure to the asset markets in the emerging markets, including Hong Kong.

“As far as Hong Kong is concerned, we would take measures that are specific to the housing markets and as you are aware, the government has introduced a package of measures in mid-August including land supply, sales practice and measures to dampen speculative activities in the markets. And as far as HKMA is concerned, we have introduced measures which tightened underwriting standards.

“We will continue to monitor the market condition and we’ll introduce measures as appropriate.”

PHILIPPINE CENTRAL BANK GOVERNOR AMANDO TETANGCO

“With yields in the U.S. expected to remain low for longer, the shift of funds to EMEs, including Philippines, may continue,” Tetangco said in a mobile text message to reporters.

“The BSP will therefore remain vigilant in monitoring developments and gauging how effectively this Fed move will perk real U.S. growth, and therewith global inflation outlook.”

MEXICO FINANCE MINISTER ERNESTO CORDERO

Authorities in Mexico and abroad need to monitor “the risk that this could generate more bubbles in asset markets.”

“We will be very watchful in case we start to see a lot of this money getting channeled into the Mexican economy.”

BRAZIL CENTRAL BANK PRESIDENT HENRIQUE MEIRELLES, IN

COMMENTS TO GLOBONEWS

“The result is a big expansion of liquidity, which is not being totally absorbed by the United States. This flows out onto other countries, including Brazil, which is growing. The consequence is an excessive liquidity of dollars which we are absorbing … There was the decision of (raising Brazil’s) IOF tax (on foreign purchases of bonds), and prudential measures aimed at preventing this from creating credit bubbles in the economy.”

BRAZIL’S FOREIGN TRADE SECRETARY WELBER BARRAL

“(The Fed’s decision) is cause for concern. They are policies that impoverish those around them and end up prompting retaliatory measures. And then you have this type of cancer which is protectionism, that spreads very fast.”

(Compiled by Jason Lange in Mexico City; Editing by Gary Hill)

Factbox: Emerging markets wary Fed policy may amplify inflows