Emerging markets better equipped to deal with Fed rate hike cycle – S&P

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FILE PHOTO: The Federal Reserve building is seen in Washington, DC

LONDON – Financing conditions have tightened for emerging markets both domestically and externally but they are better prepared to handle the U.S. Federal Reserve’s upcoming monetary tightening policy cycle, ratings agency S&P Global Ratings said.

Emerging markets financing conditions are on a tightening streak with countries outside Asia bearing the brunt. Turkey, Brazil and Colombia are the countries that have seen the biggest increases in local bond yields since end-2020.

S&P said it now expects the Fed to raise interest rates six times in 2022 compared to a previous forecast last month of three or more rate hikes. Some investment banks like BoFA expect as many as seven rate hikes this year.

And while most emerging markets seem to be better positioned to face the upcoming rate hike cycle, some pressure on exchange rates and bond yields is likely.

S&P expects current account dynamics to be the main channel of transmission of a faster-than-expected Fed tightening cycle for Argentina, Chile, Colombia and Turkey. Fiscal imbalances would be the main channel for Brazil, India and South Africa.

(Reporting by Saikat Chatterjee; Editing by Mark Heinrich)


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