Did interest rate guidance in emerging markets work?

This paper studies the experience of emerging markets with explicit interest rate guidance during 2020-2021. Despite some heterogeneity, interest rate guidance generally provided additional monetary stimulus, as reflected in lower medium-term yields and lower term spreads. The magnitude of the reduction in 10-year yields ranged between five and twenty basis points, and these effects are found when the policy rate was at its historical minima. Outcome-based guidance appears to have had the largest effects. In the immediate aftermath of the guidance, we do not observe a systematic negative market reaction of the kind that would be associated with a loss of central bank credibility or with concerns about fiscal dominance, such as a de-anchoring of inflation expectations, currency depreciation pressures, or increased sovereign credit risk.