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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.
