As Money Flows Out, EMs May Need to Be Market Makers: Carstens

  • Mexico central bank head highlights risks from low liquidity
  • EM capital outflows are probably `very bad' so far this year

Emerging market authorities may need to copy the behavior of advanced nations during the 2009 crisis and step in to ensure financial market liquidity in the face of capital outflows, Mexico central bank Governor Agustin Carstens said.

Last year was “terrible” for capital outflows and the first weeks of 2016 were probably "very, very, very bad," Carstens said on a panel at a Bank of France event in Paris on Tuesday. The resultant volatility in stocks and interest rates is a source of concern and developing nations may need to play a more active role in their domestic markets, Carstens said.

"We might have to be market makers of last resort in our own local markets, not very different from what advanced economies did at the time of the crisis," Carstens said, speaking alongside Bank of England Governor Mark Carney and Credit Suisse Group AG Chief Executive Officer Tidjane Thiam. "It might be the time for emerging-market economies to become unconventional."

Referring to a volatility chart, Carstens, 57, said "the right hand side chart is not an electrocardiogram, although it might be mine you know when I get to my office sometimes. But you can see how the volatility of capital flows has increased."

Carstens reiterated that Mexico’s central bank must closely follow the actions of the Federal Reserve in the U.S., the country’s primary trading partner.

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