Third, the prevalence of the dollar as a safe-haven currency could weaken the credit channel through which loose monetary policy works in other economies. Fourth, given diminishing returns from accommodation, further attempts at easing could damage the credibility of monetary policy. And finally, the tendency toward cyclical convergence could lead to the re-synchronization of monetary policies at some point.
In this context, the panorama for emerging economies could deteriorate significantly. Divergence is already reflected in portfolio adjustments and asset prices. However, as new information on monetary stances in advanced countries becomes available, new changes may ensue. In this regard, only surprises would carry weight. Possible effects could include more portfolio re-composition, decompression of interest rate term premiums, as well as further currency depreciations.