Developing Country Currencies May Resist US Interest Rates
Developing country currencies may resist US interest rates. Bloomberg research showed that these countries could be resistant to the gradual increase in US nominal rates.
Developing countries’ currencies may be resistant to the gradual increase in US nominal interest rates, according to the results of the research conducted by Bloomberg. This determination of Bloomberg is based on the historical definition of an average monthly increase of 13 basis points as ‘gradual increase’ since 2013. Accordingly, it was stated that the increase in these levels has a positive effect on the currencies of the developing countries when analyzed as a whole.
Asian and Eastern European countries with low returns perform well under these conditions, while countries with high returns and Latin America are considered the most vulnerable. In the research, the recent recovery in the external indicators of developing countries ensures that the countries remain a little more secure. For example, the 1-year median current account deficit/GDP ratio of developing countries except China is around 1 percent. This figure represents the strongest figure seen since 2006, when data began to be recorded. Before the step of reducing asset purchases from the USA in 2013, this figure was minus 1.8 percent.
Another important issue touched on in the research was that small changes in US interest rates will gain importance at the current stagnant interest levels. According to the same report, movements equivalent to 34 basis points per month in bond interest lead to sales in all developing country currencies.
Source: Bloomberg HT