World Bulletin / News Desk
Emerging market monetary policy settings are on the loose side from the perspective of domestic economic conditions as the U.S. Federal Reserve tightens monetary policy, credit ratings agency Fitch Ratings said Tuesday.
These policy settings could tighten by more than the consensus expects as global monetary conditions normalize, according to the latest research from Fitch's economics team.
Fitch looked at the monetary policy stance of 10 large emerging markets through the lens of 'policy rules' that attempt to describe in a very simplistic fashion how central banks set interest rates in response to domestic economic conditions, namely inflation relative to target and the level of unemployment.
“Fitch's analysis shows that six of the emerging market 10 are currently running policies that are looser than would be implied by these simple policy rules: Turkey, China, Poland, Brazil, Indonesia and India.
Among these, Turkey is found to have the most overly-accommodative stance using this policy rules-based analysis.
“Brazil also has an overly-loose policy according to this analysis, although our framework does not factor in the likelihood of a large output gap in Brazil following the recent deep recession there.”
Fitch noted that emerging market policy rates could see more upwards adjustment than currently expected by financial markets as global monetary conditions normalize.
This could be exacerbated by any generalized appreciation in the U.S. dollar and associated declines in emerging market capital inflows, according to Fitch.
“Russia, Mexico and South Africa are running a tight monetary stance relative to their domestic cycle. But the reversal of capital flows and the rising U.S. dollar, in part spurred by the gradual ending of easy money by the Federal Reserve, has deterred these three countries from easing their policies and to remain cautious.
“Only Korea is found to have current interest rates broadly in line with what domestic economic conditions would warrant,” it added.
His comments came after a joint statement issued in Washington said Beijing had agreed to reduce its trade deficit, "significantly" increasing purchases of American goods.
Euro area goods trade surplus reaches over $60B, EU28 deficit at $7.5B, official figures show
Property sales in April down 9.9 pct year-on-year, according to official data; sales to foreigners surge 25.8 pct
European stock markets meanwhile rose as the euro weakened against the dollar, but Wall Street pulled back in early New York trading.
BIST 100 climbs 0.44 pct; foreign currency exchange rates rise against lira
Banks' total assets reach over $42 billion as of March
Industrial output jumps 9.8 percent in Q1 and 7.6 percent in March year-on-year, official figures show
BIST 100 slightly increases by 0.07 percent; US dollar/Turkish lira exchange rate stands at 4.4680
Emerging market monetary policy could tighten more than expected as global monetary conditions normalize, says ratings agency
Further policy action is needed to more decisively boost domestic investment, which would also support external rebalancing.
Gap stood at $4.8 billion in March with 12-month rolling deficit of $55.4 billion
Automotive exports rise to $11.3 billion in first 4 months of 2018
Finance Minister Naci Agbal says Turkish banks are careful to abide by rules of international institutions
BIST 100 rises 0.09 percent; US dollar/Turkish lira exchange rate stands at 4.2450