The interest rate hike by the Federal Reserve reflects a strengthening US economy that will benefit emerging market economies but also make them vulnerable to volatile capital flows, Moody’s Investors Service said on Thursday. “A resurgence of heightened cross-border capital flow volatility in response to the Fed’s tightening could have negative spillovers for those with large external funding needs, high leverage, macroeconomic imbalances, or uncertainties around politics and policies,” it said.
The interest rate hike reflects a strengthening US economy that should continue to expand through 2018 and emerging markets exporters will benefit if US growth translates into higher import demand. “While the impact of the rate increase on the US economy will be negligible, emerging market economies with large external funding needs and macroeconomic imbalances could be vulnerable to capital outflows,” it said.