In emerging markets, managing foreign exchange risk is critical

One major change in recent years is how policy makers in many emerging markets have become comfortable with using currency as a buffer to insulate their economies from negative shocks.

Among the first lines of defence against any political, economic or external shock is to allow currency weakness, with authorities only stepping in to counter falls once they become significant enough for inflation pass-through to become a concern. As such, management of currency risk in order to control volatility and avoid potential losses has become even more important.

Colm McDonagh, head of EM fixed income, Insight investment – a BNY Mellon company

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