Moody’s says economic conditions to determine emerging market vulnerability to higher US interest rates

Moody’s Investors Service said Tuesday that economic conditions in emerging economies would determine how vulnerable they were to rising long-term interest rates in the United States.

In a report released in New York overnight, the US credit rating agency noted that yields on US Treasury bonds rose last week “on optimism about US economic recovery and expectations of rising inflation.

“Given the US dollar’s role as the primary international reserve currency, US bond market volatility reverberates globally and poses the risk of sustained global financial tightening,” the report said.

“Such tightening, in turn, would likely jeopardise already fragile economic recoveries in many emerging markets.

“For emerging market countries, the effect of the rise in US long-term interest rates and the ability to navigate through increased market volatility varies widely and depends on the particular country’s reliance on external capital and its domestic macroeconomic conditions.”

The report — by Moody’s managing director for credit quality Atsi Sheth — said tighter finance would have varied impacts on economic activity in emerging economies.

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