Central banks in emerging markets face a ‘dilemma’ after oil prices plunge - analyst
09.03.2020, 09:23

Central banks in emerging markets face a ‘dilemma’ after oil prices plunge - analyst

CNBC reports that the plunge in oil prices has hit many emerging market currencies - and their central banks now face a "policy dilemma" of how to support their respective economies amid an expected slowdown in growth, an analyst said.

"Central banks across emerging markets are, on the one hand, facing huge sell-offs in their currencies; and on the other hand, a slowdown in growth," Cedric Chehab, head of country risk and global strategy at Fitch Solutions, told CNBC.

"So what do they do? Do they cut interest rates to stimulate growth or do they raise interest rates to support their currencies? I think a lot of central banks are going to be squeezed by this policy dilemma now," he added.

Oil prices dived to around $30 per barrel on Monday after the Organization of the Petroleum Exporting Countries, or OPEC, failed last week to strike a deal with its allies - including Russia - to cut production further.

Following that, Saudi Arabia - the world's largest oil exporter - slashed its prices for April and plans to increase production above 10 million barrel per day next month, reported Reuters. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

Those developments in the oil markets hurt currencies of emerging economies with huge exposure to oil, such as Mexico and Russia, as well as those with "twin" current account and fiscal deficits, such as Indonesia, according to Chehab.

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