The US Federal Reserve’s jumbo interest rate cut is likely to ease the pressure on indebted emerging markets and fire up demand for local currency bonds after a drab period of returns, say investors.
Central banks, including those in South Africa, Turkey and Indonesia, have lowered their own policy rates or made dovish hints this week, as the first reduction in US rates in four years potentially ushers in the end of a dollar dominance that has rocked their economies.
Investors now hope that lower US rates, plus a potential “soft landing” in which the American economy avoids a recession that would have dragged down developing nations, will help attract money back into emerging market debt.
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