HONG KONG -- To better cope with the declining global investment appetite amid growing economic uncertainty, emerging markets should aim for a stable macroeconomy and well-communicated monetary policy, Bank Indonesia Deputy Gov. Hendar told the Asian Financial Forum here Tuesday.
The tightening of U.S. monetary policy, China's cooling economy and the collapse of commodity and oil prices have triggered a massive capital flight from emerging markets, and central bankers should take the lead in halting this trend, he said.
"It is very important for the central bank to play a significant role to maintain the confidence of foreign investors in our financial markets," said Hendar, pointing out that emerging markets are reliant on portfolio and foreign direct investments.
In addition to their chief duties of maintaining a stable macroeconomy and pumping ample liquidity into the financial system, central bank policymakers should also foster transparency, he said.
"We have to be clear [on] what is the decision-making process of the central bank; how we communicate to the market," Hendar said.
When Bank Indonesia slashed the reference interest rate by 25 basis points to 7.25% on Jan. 14, the move had already been conveyed to the market, according to Hendar.
Speaking at a different session, Ben Bernanke, former chair of the U.S. Federal Reserve, also underscored the need for transparency from policymakers. He said the market would return the favor by responding accordingly.
Bernanke, who steered the U.S. economy's recovery from the 2008 financial crisis through quantitative easing, said the People's Bank of China "has not been as transparent as they usually are."
In a move that sparked market volatility, China's central bank devalued the yuan in August last year. Some regarded the step as a competitive devaluation. China has vowed not to devalue yuan.
Giri Jadeja, global head for financial innovation at International Finance Corp., said in times of economic uncertainty, "what the market needs to know and wants to see is a certain amount of predictability."
