Total EMDE inflows are projected to decline further, after a substantial drop last year, as the Federal Reserve starts to raise the policy rates and the EMDE growth remains lackluster. Flows during the year are again likely to be volatile, as markets are affected by shifting expectations of the Federal Reserve’s policy trajectory, oil market uncertainty and political risks.
Third, to avoid affecting credit allocation, it would be preferable to carry out operations in deep and liquid markets. A liquid market permits transactions to be made quickly and with negligible direct effects on the price of the assets bought and sold. The purpose of open market operations is to affect the supply of reserves and thereby the federal funds rate.