LIVE MARKETS-Fed caution likely to push rates in major EMs higher: S&P Global Ratings

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FED CAUTION LIKELY TO PUSH RATES IN MAJOR EMERGING MARKETS HIGHER, S&P GLOBAL RATINGS SAYS

Emerging markets are already feeling the heat from likely higher-for-longer Federal Reserve policy, and S&P Global Ratings sees even more caution and likely higher EM rates ahead as regional central banks try to keep interest rate differentials wide enough to tempt investors.

Expectations for just one Fed rate cut this year prompted the firm to revise policy rate forecasts for nine key emerging markets, Elijah Oliveros-Rosen, S&P Global Ratings chief economist, emerging markets, said in a note published Tuesday.

"The median shift in our rate forecasts (for the end of 2025 and the end of 2026) is a shift up by 50 basis points."

The economies included Colombia, Hungary, Mexico, and South Africa.

EM central banks, many of which were lowering interest rates in a bid to stimulate growth, now must be more cautious that their rate differentials with the U.S. do not rapidly narrow and drive capital outflows.

That's only compounded by the uncertainty around U.S. tariff policy.

"There is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world," Oliveros-Rosen said.

"As a result, our baseline forecasts carry a significant amount of uncertainty."

For Brazil, S&P Global Ratings sees the benchmark rate ending 2025 at 14.75%, from its current 13.25%. A weekly survey from Brazil's central bank showed projections of rates ending the year at 15%.

For Turkey, however, S&P Global expects rates to end 2025 at 32.50%, 250 basis points lower than its forecast in November 2024.

Forecasts for rates in Asian emerging markets were unchanged.

(Lisa Mattackal)

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