The fostering of domestic bond markets with an increased number of domestic institutional investors may help to enhance the resilience of the economy to various shocks, but this will probably take some time. Low policy interest rate and “follow-the-leader behaviour” Large-scale capital inflows are often motivated by interest rate differentials.
This move seems to have been amplified by the aforementioned cross-border money market and bond market linkages. While bringing various favorable effects to the region, capital inflows put their central banks in a trade-off regarding the decision to set short-term policy interest rates.