Moody's Investors Service on Thursday said emerging market (EM) economies with limited foreign exchange buffers are more at risk to a rise in interest rates in the US.
“Emerging market sovereigns face varying degrees of exposure to rising US interest rates, with those possessing limited buffers and policy space being most at risk to adverse capital flows and investor sentiment,” it said in a report.
The big drops in emerging market exchange rates this year are partly in anticipation of a Fed action. Other contributory factors include slowing Chinese growth and the related fall in export revenues for commodity exporters, Moody's added. “When a Fed move occurs, though anticipated, there remains a low risk of a disorderly reaction, should an initial move by the Fed cause investors to abruptly adjust their expectations for yields,” it said.