| LONDON, March 16
LONDON, March 16 A widely anticipated U.S.
interest rate hike combined with a dovish outlook for the
future path of rates lifted emerging stocks to 20-month highs on
Thursday but also prompted a number of developing central banks
to tighten monetary policy.
MSCI's emerging equity index jumped nearly 2
percent - the biggest daily gain since last July - after the
U.S. Federal Reserve administered a widely expected 25 basis
point interest rate hike but sounded a less hawkish tone than
many had anticipated on the path of future rates.
Propelled by dollar weakness and rising commodity prices,
emerging currencies also sailed higher. Taiwan's dollar
touched a 10-month high, South Korea's won strengthened
over 1 percent and commodity currencies such as the rand
and rouble rose around 0.5 percent.
Average premia on emerging sovereign dollar bonds tightened
six basis points to 309 bps.
"Emerging markets are in a sweet spot," said Inan Demir,
senior emerging market economist at Nomura.
"This was the best scenario indeed, because the Fed is
confident enough to hike, confident enough in the U.S. economic
performance but it also doesn't sound in the mood to take away
the punch bowl."
The normalisation of Fed monetary policy also pushed some
emerging market central banks to follow suit: China's central
bank increased short-term interest rates for the third time this
year in a move seen aimed at curbing capital outflows and
supporting the yuan.
Hong Kong, which pegs its currency to the U.S. dollar,
raised benchmark interest rate by a quarter point
Four Gulf central banks – Saudi Arabia, the United Arab
Emirates, Kuwait and Bahrain, also with currencies pegged or
loosely tied to the dollar, also raised interest rates. Qatar
and Oman are expected to follow.
Investors are awaiting the outcome of a central bank meeting
in Turkey where a large external deficit makes it vulnerable to
higher U.S. borrowing costs.
After jumping nearly 2 percent in the wake of the Fed
meeting, the lira slipped 0.4 percent on Thursday. Analysts
widely expect the central bank to stay put on benchmark rates
but anticipate a possible hike in the late liquidity window, the
facility though which it funds banks.
"A token rate hike in the late liquidity window is possible,
maybe 25 bps or maybe 50 bps, but after having seen the lira
performance last night the chances of no change have increased
as well," said Nomura's Demir.
Indonesia's central bank, also scheduled to release its
latest decision on Thursday, is expected to keep its benchmark
interest rate unchanged in a bid to spur economic growth.
For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5
Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 961.59 +18.07 +1.92 +11.52
Czech Rep 982.72 +3.53 +0.36 +6.63
Poland 2265.73 +35.86 +1.61 +16.32
Hungary 33132.95 +496.77 +1.52 +3.53
Romania 7962.08 +9.25 +0.12 +12.38
Greece 634.70 +1.73 +0.27 -1.39
Russia 1090.69 +28.08 +2.64 -5.35
South Africa 45279.76 +624.21 +1.40 +3.14
Turkey 90453.71 +1008.17 +1.13 +15.76
China 3269.54 +27.78 +0.86 +5.35
India 29539.54 +141.43 +0.48 +10.94
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.01 27.01 -0.02 -0.02
Poland 4.31 4.31 +0.01 +2.15
Hungary 309.82 309.33 -0.16 -0.32
Romania 4.55 4.55 +0.02 -0.28
Serbia 123.84 123.81 -0.02 -0.40
Russia 58.08 58.39 +0.52 +5.47
Kazakhstan 317.16 318.66 +0.47 +5.20
Ukraine 26.98 26.85 -0.48 +0.07
South Africa 12.74 12.79 +0.33 +7.75
Kenya 102.95 102.86 -0.09 -0.56
Israel 3.63 3.63 -0.25 +5.95
Turkey 3.69 3.67 -0.32 -4.33
China 6.90 6.91 +0.24 +0.67
India 65.45 65.62 +0.26 +3.81
Brazil 3.10 3.10 +0.01 +4.84
Mexico 19.20 19.21 +0.08 +7.92
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 331 -7 .29 7 59.99 1
All data taken from Reuters at 09:12 GMT. Currency percent
change calculated from the daily U.S. close at 2130 GMT.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see)
(Reporting by Karin Strohecker; Editing by Toby Chopra)