Past 30 years United States began raising interest rates emerging markets are

Past 30 years United States began raising interest rates, emerging markets are in an emergency, what happens?

The past 30 years, the Fed started raising interest rates five times in total.

From November 2014, the Federal Reserve ended a third round of quantitative easing (QE3), hangs over the heads of emerging economies, “the sword of Damocles”–United States when boot suspended since June 2006 have raised interest rates will soon fall.

Widely expected, December 17, at 3 o’clock in the morning Beijing time, the Fed raised interest rates for the first time after the lapse of ten years will be announced. It is also this year’s final FOMC (Federal open market Committee) meeting.

Once the Fed raising interest rates, emerging economies have worries?

In Korea, for example, the country’s Central Bank had decided on December 17 at 8 o’clock in the morning meeting to discuss effects of raising interest rates on national, Korea’s Central Bank also made it clear that, after raising interest rates if necessary, measures will be taken to stabilize the market. In September, when Fed rate hike given up, Korea was also the first time the Government held an emergency meeting of economy and finance, discusses the country’s response.

Emerging economies worry, not without reason.

The past 30 years, the Fed started raising interest rates five times in total, almost at the same emerging markets bear the memory of the crisis.

Past 30 years United States began raising interest rates, emerging markets are in an emergency, what happens?

“The Fed rate hike affect commodity prices, emerging markets and the United States spreads and the exchange rate, which then transfer to the trade and cross-border capital flows, so that the BoP position in emerging markets deteriorated and pressure to repay foreign debts surged, and held to a certain extent monetary policy, leading to the economic crisis. “China Merchants securities Economist Xie Yaxuan, analyst said. The a share Black Friday each of four bad weekends

While the crisis triggered each time the background is complex, but in essence, are based on United States financial markets and the US dollar’s special status. After all, the dollar accounted for foreign exchange reserves of more than 60%, international trade settlement currency markets the dollar accounted for more than 50%, of the dollar in global foreign exchange market accounted for more than 40%.

With the 1997 Asian financial storm as an example, this still leave a lingering shadow of crisis in Asian countries, it is closely related with the Fed raising interest rates.

Then, in 1994, the Federal Reserve target rate within one year increased from 3% to 6%, United States attracted global attention at the same time, capital flight and devaluation pressure coming on to the Asian countries, which have followed the Federal Reserve’s tightening of monetary policy. Meanwhile, under the influence of the real estate bubble burst, the 1990 Japan economic slowdown, Korea, and Malaysia, Indonesia, Thailand and Japan have close trade with the Asian country, has been put in jeopardy.

While the export pressure, because United States currency devaluation pressure on the interest rate hike should not be underestimated, but Asian countries still don’t die will be the default currency pegged to the dollar. Thailand, the Philippines, Indonesia, Malaysia and other countries have become the focus of attack by international speculators, States rich enough heavy drain on foreign reserves, only to abandon the fixed exchange rate, which led to the 1997 Asian financial crisis and rampant.

Then, Fed rate hike after ten years will once again press the button, the emerging economies to avoid history repeating itself?

The World Bank (World Bank), emerging economies are likely to have been associated with United States interest rate hike to withdrawals, in an even more difficult position.

In a report released at the beginning of December, the Bank named emerging economies said, sluggish trade, oil and other commodity prices fall, three negative effects of strict loan conditions, may lead to open begins era of low economic growth in emerging economies.

And external debt is too high, Brazil and South Africa, have been exposed early in the crisis: economic slowdown, sharp currency devaluation, tortured by rating agency downgrades.

This is not the case.

Starting from the end of last year, Fed rate hike expectations rising, almost without exception in this year’s depreciation of the currencies in emerging markets, India rupee, South Africa RAND, and Brazil reais, and Malaysia m pl a record low over the years. From the United States experience of successive rate hikes, is often the most severely affected debt, external storage smaller economies, and breathe in the early international capital more interest to withstand capital flight, the greater the pressure.

While the December FOMC meeting is just the beginning.

Almost no doubt for such a rate hike or not meeting, the market has set his sights on the Fed’s rate hike path, when will the next rate hike will be. This is the market is more concerned about.

Societe Generale said in its latest research report, as soon as the Fed raised interest rates for the first time the dust settled, policy uncertainty will soon start to rise again, to the deployment of additional funds in emerging markets and deter investors.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s