Fed's rate cut to encourage monetary easing in emerging markets: S&P

By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve's interest rate cut of 50 basis points will encourage monetary easing across emerging markets (EM) in the coming months, S&P Global Ratings said in a report Thursday.

"As the Fed begins rate cuts, we expect EM central banks to continue or begin rate cuts, boosting domestic demand in late 2024 and early 2025," it said.

"Markets are pricing in significant rate reductions in Colombia, the Philippines, and Mexico, where rates remain near recent highs and inflation has slowed," it added.

The agency said GDP growth has been generally robust across emerging markets during the second quarter, fueled by stronger domestic demand amid falling inflation and improvement in real income levels.

It added that a decline in energy prices could further support rate cuts by central banks in emerging markets, especially for net energy importers such as Thailand, the Philippines, Hungary, Türkiye, Chile and India.

"Lower import costs may improve current accounts and strengthen their currencies," it noted.

The agency warned, however, that uncertainty about the US economy, geopolitical risks amid ongoing conflicts, and political uncertainty could cause market volatility in the future.