remarks by javier guzman calafell, deputy governor at the banco de mexico, at the “ policy dialogue : global finance exploration ”. international finance forum 2018 annual conference “ new globalisation : a path to the future ”. guangzhou, china, november 24, 2018. 1 let me start by expressing my appreciation to the organizers for the opportunity to participate in this 2018 edition of the iff annual conference. following a period of strong inflows in 2017 and early 2018, nonresident portfolio capital flows to emerging market economies ( emes ) started to reverse in late - april this year, with bond and equity fund withdrawals accumulating to date about us $ 28 billion. this has responded to a spike in risk aversion, reflected in a series of waves of uncertainty over the year in response to a combination of developments. the latter include upward - trending interest rates in the us, a surge in trade - related tensions, geopolitical developments, a deceleration of the chinese economy, the decline in key stock markets, heightened political and policy uncertainty in a number of emes, as well as sharp declines in oil prices to levels not seen in about a year, among others. as a result, financial conditions in these economies have shown a significant tightening which, according to some estimates, is comparable to that experienced during the taper tantrum episode of 2013. 2 in the face of mounting pressures, the immediate policy response in emes has relied mainly on a couple of tools. first, monetary policy has in general turned more restrictive, with reference rates increasing sharply in specific instances the views and opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. international monetary fund ( 2018 ) : global financial stability report, october. where conditions deteriorated more severely owing to persistent external vulnerabilities and perceived idiosyncratic risks. secondly, the exchange rates of many emes have adjusted in response to these shocks, with some of these currencies receiving support from foreign exchange intervention, either in the spot market of via derivatives. among the factors explaining the reversal of capital flows and consequent tightening in broader eme financial conditions, monetary policy normalization in the united states is particularly noteworthy. naturally, higher interest rates in the us can be expected to represent a drag on capital flows towards emes. notwithstanding some recent easing, market repricing of

to some observers, the recent adjustments in international financial markets ( rising interest rates, declining stock indices, and depreciating currencies vis - a - vis the us dollar ) are a welcome development as they are consistent with a strong economic outlook, reduced risks of deflation in some aes and, in general, a thus - farsuccessful exit from the massive monetary accommodation of the decade following the outburst of the crisis. 4 however, the risk of a sudden, sharp tightening in financial conditions cannot be discarded. at the current economic and political global juncture, a number of factors increase significantly the risk of a potentially disruptive scenario. among these, it is worth highlighting, first and foremost, the possibility of surprises in ae monetary policy normalization. this is particularly worrisome in the case of the us, where notwithstanding downward adjustments in market expectations about the future path of interest rates following the recent market rout, inflation could surprise to the upside as a result of ongoing fiscal stimulus measures implemented in the context of an economy operating at, or near, full capacity, in addition to price pressures that may derive from increased import tariffs. secondly, market sentiment might be adversely affected by increased political and policy uncertainty in a wide range of economies, both advanced and emerging. at the top of these concerns is the further escalation ( or, at least, the persistence ) of global trade tensions, especially between china and the us, whose broader implications can well go beyond the specific sectors that to date have been targeted. thirdly, confidence on the resilience and credibility of policy frameworks in emes may erode, as external shocks combine with existing vulnerabilities in many of them and growing concerns about central bank independence in some particular instances. see, for instance, stephen s. poloz ( 2018 ) : “ making sense of markets ”, remarks before the canada – uk chamber of commerce, 5 november. in addition, challenges of a structural nature may complicate matters further. first, as noted above, the context in which monetary policy normalization in the us and other aes is taking place is unprecedented, making in turn its potential ramifications difficult to assess and foresee. for one, interest rates had never been so low for this long, while the unwinding of the stimulus provided by unconventional monetary policy measures adopted at such a large scale remains untested. in light of these and other uncertainties, including the ones related