Emerging market currencies will come under pressure from a tight monetary policy in the US

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MUMBAI: Emerging market currencies could come under heavy depreciation pressure if the US tightens its monetary policy at a rapid pace, according to a report by Fitch Ratings.

Exchange rate pressures will force emerging markets to make their monetary policy decisions. Interest rates will also rise on loans raised in dollar terms by emerging markets.

Even before the US Federal Reserve raises its interest rates, some countries, including Chile, Brazil, and Russia, have raised interest rates to reduce possible capital outflows from their countries.

These earlier emerging markets lag far behind the US in raising interest rates. Inflation in the US is currently at a 40-year high, with interest rates relatively low.

Although some emerging markets have raised interest rates, we expect exchange rates in emerging markets to come under broader pressure as monetary policy tightens in the United States, the agency said in a report.


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