(Finance) – Il Federal Reserve’s December pivot offers further room for interest rate cuts in emerging markets (EM) in 2024. S&P Global Ratings states this in a new report on the topic, predicting that the central banks of the main emerging countries that have started to cut rates will continue to do so in the coming months, while those that have not done so will start to do so by the end of 2024. That said, the size and timing of cuts will continue to be influenced by the trajectory of market expectations regarding Fed policy.
It is also highlighted that i reference bond yields of the main EM economies they compressed following the Fed’s change of course, as markets price in more aggressive interest rate cuts. In all EM economies, with a few exceptions, local currency financing rates have remained stable or decreased significantly. “It is not surprising that yields have fallen in most major Latin American economies, due to their increased correlation with the United States,” it is pointed out.
Furthermore, S&P notes that the growing tensions in the Red Sea increase the risk of new upward pressure on inflation, as well as ongoing disturbances in the Panama Canal. The Red Sea is a fundamental route for the transit of energy raw materials (in particular oil and liquefied natural gas) and for goods in general.
Transportation costs have increased in response to the conflict, although the rise in commodity prices has so far remained limited. The major EM economies most directly affected includeIndiathe China (through imports of energy resources) and the Türkiye (given disruptions to supply chains).