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Emerging nations ease policy rates as developed markets tighten: Fitch

28 Aug '23

2 min read

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A divergence in policy interest rates between emerging and developed markets has been noted, according to Fitch Ratings.
While central banks in developed nations are raising rates due to persistent core inflation, most emerging-market counterparts are holding steady, with some, like Brazil and Chile, cutting rates due to improved inflation forecasts.

Policy interest rates are beginning to diverge between emerging and developed markets, according to the latest economics dashboard from Fitch Ratings. While major central banks in developed markets are raising rates to combat persistent core inflation, most emerging-market central banks are either keeping rates on hold or starting to cut them.

In emerging markets, divergence is also evident. Korea, Indonesia, Mexico, South Africa, India, and Poland are maintaining their policy rates for now. Brazil and Chile, on the other hand, have recently reduced rates, reflecting improved inflation outlooks and slowed economic activities as past tightening measures take effect. China has also cut rates recently due to losing momentum in economic recovery. Conversely, Turkiye and Russia have recently implemented rate hikes, as per Fitch Ratings.

These moves could spark expectations of a broader-based easing cycle among emerging markets in the upcoming months. Fitch’s index of geographical dispersion in the direction of monetary policy shows a clear pattern. This index, aggregating data from 39 central banks, examines the proportion of banks that have either hiked or cut rates in the past six months. Although the emerging-markets index remains above 50, indicating more tightening than easing, it has decreased considerably in recent months. In contrast, the index for developed markets remains high.

Despite this, emerging-market central banks are still cautious about inflation risks, which could arise from factors like higher food prices, the El Nino phenomenon, and still-elevated core inflation rates in some countries.

Fibre2Fashion News Desk (DP)

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