LONDON- Emerging market foreign exchange reserves fell by more than $190 billion in March as governments intervened to either ease volatility or support their currencies amid a sharp rise in capital outflows, JPMorgan analysts estimated in a research report.
Faced with a combination of economic fallout from the coronavirus pandemic and an oil price shock, investors fled emerging market debt en masse in March, with outflows of $31 billion, the second-largest monthly outflow on record, according to data from the Institute of International Finance.
In a bid to try to soften the blow, China’s FX reserves likely fell by just over $60 billion, JPMorgan estimated, with a further $130 billion from other emerging markets.
“The decumulation is consistent with EM reserve managers intervening to either reduce volatility or to support their currencies amid a sharp increase in capital outflows,” the analysts wrote.
In an effort to ease access to cash and strains in funding markets, the US Federal Reserve on April 6 started allowing foreign central banks to exchange Treasury securities for overnight dollar loans.
Although that move provided an alternative to liquidating dollar denominated bonds to provide dollar liquidity for central banks facing cash shortages it did not “meaningfully change the picture for countries facing dollar funding issues,” the report noted, adding the FX swap facilities extended by the Fed to several central banks was more helpful.
