SINTRA, Portugal, May 27 (Reuters) - Mexican central bank governor Agustin Carstens said on Tuesday emerging market economies should generate growth internally rather than rely on growth in advanced economies in order to be able to weather an end to loose global monetary policies.
Carstens also said the strong capital inflows as a result of loose monetary policy in the United States or Japan meant that some of the “bad habits” that led to the financial crisis were now showing up in emerging markets.
“Emerging market growth cannot depend for the near foreseeable future on the assumption that advanced economies will grow much faster,” Carstens told an audience of fellow central bankers and academics at the ECB’s Forum on Central Banking.
“When the monetary policies change there will be upward pressure on spreads. We would like to generate internal conditions so that having stronger and more resilient economies you can limit that correction in spreads,” he said.
“The more successful you are the better you will do when the unwinding takes place.”
Carstens said he noted “a recycling of bad ideas” from 2007 and 2008, pointing to a boom in the high-yield bond market, corporate funding at “very low rates” and the broadening use of exchange traded funds (ETFs) that needed to be watched.
“The principle of many of these ETFs is if you bundle up illiquid assets you convert them into liquid assets and that is not true,” Carstens said.
“There is no magic. If you have a bunch of illiquid assets - even if you bunch them together - you still have an illiquid asset. And in a process of adjustment this can be danger.”
Reporting by Eva Taylor; Editing by Angus MacSwan