Experts fear that interest-rate increases in emerging market economies could send their stock markets plunging and endanger the global economic recovery.
Central banks in emerging market nations are beginning to tighten policy. Experts anticipate substantial rate hikes in Brazil, Turkey, Mexico and India.
“Although central banks are right to introduce policies to restrain inflation, they must not tighten too far, too fast,” Nigel Rendell, senior emerging market strategist at RBC Capital Markets, told the Financial Times.
China too is tightening monetary policy by lifting capital reserve requirements.
Some experts see the renminbi rising as much as 5 percent by year-end, which would dampen China’s export growth.
Of course, a strengthening of Asian currencies could be good news for the global economy, because it would make U.S. and European exports more competitive. And that would provide a much-needed spur for growth in the U.S. and Europe.
Not everyone sees emerging market rate hikes as cause for concern.
“The key point is that this is a return to more normal interest-rate levels. We should not worry too much over aggressive tightening,” Gary Jenkins, head of fixed income research at Evolution, told the FT.
Gold-plated bond fund manager Pimco isn’t too worried either. It has been bulking up on Brazil and Eastern European bonds.
“We have every comfort that the policy in Brazil will remain sound,” Michael Gomez, Pimco’s co-head of emerging markets told Bloomberg.
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