14 Sep 2015
Fed rate hike could be a ‘significant shock’ for the emerging markets - Fitch
FXStreet (Mumbai) - Although a rise in the Fed interest rates has been widely expected, there remains substantial uncertainty about the Fed's future moves and the markets expectations, international ratings agency Fitch noted in its freshly published report titled "Fed Lift-Off Matters for Emerging Markets."
Key quotes:
"Part of the rationale for ultra-loose monetary policies from global central banks has been to depress risk and term premiums via a portfolio-rebalancing effect."
"This is consistent with the emergence of pressure on emerging markets as Fed lift-off approaches. Emerging-market borrowers may have become more exposed since 2008 to an impact on their funding conditions from an increase in US interest rates," Fitch's researchers noted.
Despite the fact that a hike in the Fed Funds rate has been well-signaled, "there remains a substantial gap between the US Federal Reserve's indication of the future path of rates and what the market is pricing in," warning that an outcome "closer to the Fed's guidance could be a significant shock."
Key quotes:
"Part of the rationale for ultra-loose monetary policies from global central banks has been to depress risk and term premiums via a portfolio-rebalancing effect."
"This is consistent with the emergence of pressure on emerging markets as Fed lift-off approaches. Emerging-market borrowers may have become more exposed since 2008 to an impact on their funding conditions from an increase in US interest rates," Fitch's researchers noted.
Despite the fact that a hike in the Fed Funds rate has been well-signaled, "there remains a substantial gap between the US Federal Reserve's indication of the future path of rates and what the market is pricing in," warning that an outcome "closer to the Fed's guidance could be a significant shock."