Fed lift-off matters for Emerging Markets; Fitch says

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, Fitch Ratings says in a new report Wednesday.

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 rate.” Fitch’s research found.

A rise in the Fed Funds rate has been well-signalled, but 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. An outcome closer to the Fed’s guidance could be a significant shock.