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Revisiting the EM FX pass-through hypothesis

Weekly investor research

12 November 2018

The election-related Dollar rally in 2018 presents an opportunity to revisit the FX pass-through hypothesis in EM. The experience show that FX pass-through is only a serious risk in EM countries with ineffective central banks. The two countries, which clearly experienced higher inflation due to weaker currencies, Turkey and Argentina, do not have credible central banks. FX pass-through risks may rise in developed economies in the coming years due to the absence of a powerful deflationary feature, which is only present in EM countries.

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