Emerging countries react to higher US rates for longer

Emerging countries react to higher US rates for longer
Emerging countries react to higher US rates for longer

Published on May 12, 2024 at 8:43 p.m. / Modified on May 12, 2024 at 9:35 p.m.

The message has changed and emerging countries have heard it. This message is that of the American Federal Reserve: its interest rates will remain higher and for longer than initially planned, in order to fight inflation. A perspective passed down to posterity in financial jargon through the expression “higher for longer”. Until recently, financial markets expected the Fed to make six rate cuts in 2024; they are now betting on two cuts. Emerging countries had started to lower their rates earlier than Western central banks, some already in 2021, risk having to stop or even reverse this movement.

“Since the Federal Reserve sent the message that its rates were going to stay higher for longer, countries like Turkey, India, South Africa and Indonesia risk experiencing a depreciation of their currency and capital outflows,” analyzes Ed Yau, analyst and fund manager at Piguet Galland bank. In the minds of investors, the question is quite simple: why take risks on an emerging currency when they can receive 5% in dollars?

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