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Foreign currency corporate borrowing: Risks and policy responses

Atish R. Ghosh, Jonathan D. Ostry, Mahvash S. Qureshi
Non-financial corporations in emerging market economies (EMEs) increasingly rely on foreign currency debt for financing. Since the global crisis of 2008, the amount of dollar-denominated debt of EME corporations has quadrupled.
1 Research has shown that interest rate differentials between EMEs and the US have contributed significantly to this phenomenon (Bruno and Shin 2017). In essence, EME corporations prefer to borrow in foreign currency when there is a ‘carry’, meaning foreign interest rates are low relative to domestic interest rates. This carry trade borrowing leaves the firms exposed to sudden stops in capital flows and associated currency depreciations (Bruno and Shin 2020). More broadly, the accumulation of external debt on private balance sheets can lead or contribute to currency depreciation spirals and thereby poses risks for EME growth and financial stability (Acharya et al. 2015, Du and Schreger 2017) ....

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Detailed text transcripts for TV channel - MSNBC - 20190619:19:59:00

Have banking relationships. however, now i want to move over to the rate for a 30-year fixed mortgage, the expense a lot of people has. that chart looks different all of a sudden. the 30-year fixed mortgage has not been going up or down with the fed rates, and in fact over the last several years, still been a pretty good deal. exactly. one of the main transmission mechanisms, everyone talks about the stock market and all of that kind of stuff and it s a split issue the fed has. the consumer seems to be doing okay and they re worried about a pullback that would undermine the consumer. but the fact people refinance their homes, which they have been doing in droves, and we saw longer-term rates come back down and they locked and loaded on a lower rate. that s very important to the fed. that also is a stimulus transmission mechanism that s much more powerful. diane swan, thank you for talking to me, chief economist ....

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