Unlike the previous two rounds of Fed’s QE programs, the current
round of bond buying by the US central bank may actually be positive for emerging
markets. During 2010 and the first half of 2011, the major concern amongst
emerging markets was regarding high inflation and hot money flows (rapid
currency appreciation being a secondary concern). So it was not surprising that
policymakers in the emerging markets were not favorably disposed to QE2 in particular. Since then, however, growth has slowed and inflation pressures have eased
somewhat.
In fact, given the weakness of emerging market currencies and
the limited foreign investment flows during the first half of 2012, the QE3
announcement may just be the right cure at the right time. Already, emerging
market currencies have experienced a nice uptick, and portfolio inflows have
picked up as well.
Related: Chinese Yuan Reaches New Highs