FX Intervention and Domestic Credit: Evidence from High-Frequency Micro Data

Abstract

We employ a rarely available high-frequency micro dataset to study the impact of foreign exchange intervention on domestic credit growth. We find that sterilised purchases of dollars by the central bank dampens the flow of new domestic corporate loans in Colombia. Slowing the pace of currency appreciation plays a key role in dampening credit expansion. Our analysis sheds light on the role of FX intervention as part of the financial stability-oriented policy response to credit booms associated with capital inflow surges.

Keywords: FX Intervention, Credit Registry, Emerging Markets, Financial Channel of Exchange Rates

JEL Classification: E58, F31, F33, F41, G20