Wed Sep 3, 2014 6:42am EDT
(The following statement was released by the rating agency) Link to Fitch Ratings' Report: When the Fed Raises Rates: Likely Normalisation Path, Macro Shock Scenario and Sovereign Rating Implications here LONDON, September 03 (Fitch) Fitch Ratings says weaker emerging market sovereigns would be most exposed to a highly negative interest rate 'shock' scenario where US interest rates rise more rapidly and higher than our base case, in which global growth and financial markets are not fundamentally destabilised by a tightening of US monetary policy. In a special report published today, Fitch says there are several risks surrounding the Fed's normalisation path. Monetary policy action and timing depend on the outlook for growth, the labour market and inflation, which is uncertain. A tightening cycle after such an extended period of low interest rates and unwinding quantitative easing is unprecedented. The term premium could increase sharply, magnifying the impact on long-term bond yields from higher expected short-term rates. "Financial markets may also not be fully prepared for higher US interest rates, despite the Fed's forward guidance. Current low volatility and high asset prices suggest markets have not priced in much uncertainty. Therefore, in our 'shock' scenario, the spill-over effects to the rest of the world could be substantial," said Ed Parker, Fitch's Head of EMEA Sovereign Ratings. In this stylised shock scenario we assume that US productive capacity is lower than currently believed and the output gap and labour market slack are closed by end-2014, causing inflation to rise to a peak of 4.5% in 2016. The Fed is forced to raise the Fed funds target rate sharply to 3% by end-2015 and 5% by end-2016. Ten-year Treasury yields jump to 6% by end-2016, the sharpest increase since 1980-1981. In the scenario, financial market volatility and risk premiums spike, with spreads over US Treasuries on perceived risky assets such as emerging market bonds widening by 150bp. US GDP growth drops to 0% in 2016 and unemployment rises. Global growth weakens, commodity prices decline, and many emerging markets are forced to hike interest rates. The dollar is volatile, potentially hitting foreign-currency borrowers. Asset prices and collateral values drop sharply. Fitch rates sovereigns through the "normal" business and monetary policy cycles. Last May's "taper tantrum" did not lead directly to any sovereign downgrades. Nevertheless, our shock scenario is a severe one and would likely trigger some negative rating actions. The most exposed would be weaker emerging markets such as those with large external financing needs, low foreign reserves, high levels of leverage, vulnerable debt structures, weak policy frameworks or political fragilities. Countries with these characteristics include Mongolia, Turkey, Ukraine, El Salvador, Hungary, Lebanon and Jamaica. For the US, a permanent loss of potential output and the revelation that the budget deficit is largely structural would heighten the pressures facing the public finances from population ageing. Downward pressure on the rating could emerge if the US authorities were to fail to act to narrow the budget deficit and to stabilise the public debt/GDP ratio over the medium term. Our base case is for the Fed to gradually tighten monetary policy over the next 12 months, in line with its forward guidance. Raising interest rates and unwinding QE will trigger some increase in financial market volatility, but we do not expect it to fundamentally destabilise global growth or financial markets. We expect the Fed to complete the "tapering" of its asset purchase programme in October 2014; and to start raising interest rates in mid-2015, before taking them to around 3.75% by late 2017 or early 2018. Yields on 10-year US Treasury bonds may rise to 4%-4.5% by 2017, low in historical terms. We expect the Fed to stop reinvesting some or all of principal payments on agency mortgage-backed securities (MBS) and Treasury securities soon after the first rate rise. If it opts purely for a passive run-off, it could take four to five years for its holdings of Treasury bonds to revert to a normal level relative to currency in circulation. The report entitled 'US Monetary Policy: Implications of an Interest Rate Shock' is available on www.fitchratings.com. Contact: Ed Parker Managing Director +44 (0)20 3530 1176 Fitch Ratings Limited 30 North Colonnade London, E14 5GNT James McCormack Managing Director +44 (0)20 3530 1286 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
- Link this
- Share this
- Digg this
- Reprints
Anda sedang membaca artikel tentang
Fitch: Emerging Market Sovereigns Most Exposed to Fed Interest Rate 'Shock'
Dengan url
http://sarapannasiudak.blogspot.com/2014/09/fitch-emerging-market-sovereigns-most.html
Anda boleh menyebar luaskannya atau mengcopy paste-nya
Fitch: Emerging Market Sovereigns Most Exposed to Fed Interest Rate 'Shock'
namun jangan lupa untuk meletakkan link
Fitch: Emerging Market Sovereigns Most Exposed to Fed Interest Rate 'Shock'
sebagai sumbernya
0 komentar:
Posting Komentar