Highest number of emerging economies will raise rates this year since 2006: JP Morgan

Friday, 11 January 2019 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): This year will see more emerging market countries raise interest rates than at any point since the pre-financial crisis uplands of 2006, analysts at JP Morgan predict.

A presentation by the US investment bank showed 19 of the 24 emerging economies it follows are likely to lift borrowing rates. Only one country, Malaysia, will keep them on hold, while Nigeria, India, China and Turkey are set to cut their rates.

The list wasn’t exhaustive, and didn’t include the likes of Argentina, for example, which more than doubled its interest rates to an eyewatering 60% last year as its currency collapsed.

JP Morgan’s global head of research, Joyce Chang, who made the presentation, said the expected pace of hikes could end up being slower if the US Federal Reserves keeps its own increases to a minimum. However, the trend will still be upwards and shows the turnaround seen in emerging markets over the last 12 months.

Between 2015 and early 2018 developing countries, big and small from Brazil and Russia to Armenia and Zambia slashed interest rates, sending borrowing costs sinking and fund managers’ profits soaring.

From February last year, though, the resurgent dollar and higher US borrowing costs hit currencies hard, particularly Argentina and Turkey’s, prompting EM central banks to raise rates instead.

The result was that hikes outstripped cuts for eight straight months after April – the longest such run since mid 2011.

Chang’s presentation showed that the emerging market average rate will go up to just over 5% this year, from around 4.7% now.

Still JP Morgan expects local currency emerging market bonds to have a much better year than they did last year despite the moves. It sees the asset class earning investors just over 6%, which is virtually what they lost last year.

It also forecast dollar-denominated EM debt will gain 2.2% compared to the 4.3% that it lost in 2018.

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event including Valentine ’s Day. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Flower Bouquets, Clothing, Watches, Lingerie, Gift Sets and Jewellery. Also if you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.