Emerging countries and the interest rate trap

This article was written by Sébastien Ruche and commented by Ed Yau, Fund Analyst and ESG Manager. It appeared in the Lundi Finance section of the daily newspaper Le Temps on 13 May 2024.

With the US Federal Reserve's message resonating with new intensity, affirming a policy of keeping interest rates at high levels for an extended period in order to counter inflation, emerging countries are again concerned.

‘Since the Federal Reserve sent out the message that its rates were going to remain higher for longer, countries like Turkey, India, South Africa and Indonesia are at risk of seeing their currencies depreciate and capital outflows,’ analyses Ed Yau.

Turning to the specific situation of China, which is going through a severe economic slowdown, Ed Yau comments:

‘Beijing needs to revive its economy, which is why certain rates have been cut recently, such as the mortgage rate, but this is putting strong pressure on the yuan’.

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